- SearsCEO Eddie Lampert wants to buySears‘ Kenmore brand, its home-improvement business, its Parts Direct division, and some or all of the company’s real estate through his hedge fund, ESL Investments.
- One of Lampert’s critics, former Sears Canada CEO Mark Cohen, says the deal is a “sham” and would kill off the 125-year-old retailer by stripping Sears of some of its most valuable brands and real estate.
- “They keep pulling more rabbits out of the hat to keep this thing alive,” said Larry Perkins, the CEO of the consulting firm SierraConstellation Partners. “At some point, you run out of rabbits, and when you run out of rabbits, it really is over.”
- ESL Investments said the deal would “enable Sears to improve its debt profile and liquidity position, creating the runway to help continue its transformation.”
Sears CEO Eddie Lampert wants to buy the retailer’s most valuable assets – including its Kenmore brand – in a massive deal with his hedge fund, ESL Investments.
He made the offer in a letter to Sears’ board of directors, saying the deal would extend Sears’ timeline to turn around its business by providing a much-needed infusion of cash to pay off its debts. In addition to the Kenmore appliance brand, Lampert is proposing that his hedge fund buy Sears’ home-improvement business, Parts Direct division, and even the company’s real estate. One of Lampert’s most outspoken critics says such a deal would kill off the 125-year-old retailer by stripping the company of its most valuable brands and real estate, leaving it with nothing but a failing retail business.
“This is all a sham,” Mark Cohen, the former CEO of Sears Canada, said of the proposal in an interview with Business Insider. “The notion that this is anything other than an asset strip is preposterous.”
Cohen said the deal is designed to benefit Lampert, who is Sears’ largest shareholder and the chairman of its board of directors. Lampert also is the chairman and CEO of the hedge fund ESL Investments, which is one of Sears’ primary lenders. He is the chairman of Seritage Growth Properties, a real-estate investment trust that has been acquiring stores from Sears, as well. Some of the stores acquired by Seritage are rented out to Sears, while others have been divided up into new storefronts and leased to other retailers.
“The end game is to take as many assets off the table before the company is forced to file for bankruptcy, so when it files it doesn’t have anything left,” said Cohen, who is now the director of retail studies at Columbia Business School. “That benefits Eddie [Lampert] because he is in possession of the assets either as collateral for loans he’s made or outright as an investor” through Seritage and ESL.
In an emailed statement, an ESL spokesman said the proposal is “part of a comprehensive solution to transform Sears Holdings.”
The firm said the deal “will enable Sears to improve its debt profile and liquidity position, creating the runway to help continue its transformation, and allow these businesses to unlock their considerable potential by further expanding their presence in the marketplace. We are very enthusiastic about our ownership interest in Sears and its future, and will remain so whether or not a transaction is consummated.”
Sears said Monday that it would review the offer.
“There can be no assurance that this letter will result in a transaction,” the company said. “The company does not intend to comment further unless and until it determines that additional disclosure is appropriate.”
‘They keep pulling more rabbits of the hat’
Sears has been selling off brands – including Lands’ End, Craftsmen, and Sears Hometown and Outlet Stores – and real estate amid years of falling sales.
In one of its biggest transactions to date, Sears launched and spun off Seritage in 2015 to execute sale and lease-back agreements for 266 Sears and Kmart stores. The deal helped Sears raise about $US2.7 billion, most of which was quickly burned through to pay off debt.
If Sears sold its remaining company-owned stores to ESL, those locations – which are already under pressure from years of falling sales – would have to start paying rent.
“They keep pulling more rabbits out of the hat to keep this thing alive,” said Larry Perkins, the CEO of the consulting firm SierraConstellation Partners. “At some point, you run out of rabbits, and when you run out of rabbits, it really is over.”
That doesn’t mean Sears shouldn’t consider a deal with ESL, he said. The company’s resources for a turnaround are dwindling after years of declining sales and mounting debt. Sears has cut its store count in half in the last five years, and its revenues have dropped to $US16.7 billion in fiscal 2017 from $US40 billion in 2013.
The company has been trying to sell its Kenmore brand for a couple years, but hasn’t been able to find any buyers, Lampert conceded in his letter to Sears’ board.
By using the proceeds from a sale to ESL to pay off debt, the company would have more flexibility to reinvest capital into its turnaround plan, Perkins said.
“It’s like going all-in in poker,” he said. “You put all your chips on the table and you get whatever you can out of the hand you are dealt.”
If Sears’ sells off its remaining assets to ESL and its turnaround fails, “this deal looks like a swan song,” he said.
Alternatively, if the deal gives Sears the time it needs to revive business, he said, Lampert’s proposal will appear “brilliant.”
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