Sears chairman Eddie Lampert submits $4.4 billion bid in hopes of rescuing the company from imminent death

  • Sears chairman Eddie Lampert submitted a $US4.4 billion bid on Friday for many of the company’s assets, including 425 stores.
  • The bid could save Sears from imminently shutting down.
  • Lampert has blamed the company’s decline on the media, shifts in consumer spending, and the rise of e-commerce, among other reasons.
  • But analysts and critics say the company’s demise is the result of years of underinvestment in stores.
  • Some stores have shown signs of decay, such as crumbling walls, cracked floors, and collapsing ceilings. Sears employees have hung bed sheets and shower curtains to hide empty store space.

Sears chairman Eddie Lampert submitted a $US4.4 billion bid on Friday for many of the company’s assets, including 425 stores.

The bid could save Sears from imminently shutting down and keep up to 50,000 of its 68,000 workers employed, an ESL spokesman said late Friday.

The proposal was submitted by Transform Holdco LLC, a subsidiary of Lampert’s hedge fund, ESL Investments, shortly before a Friday deadline for proposals that would keep Sears from liquidating.

“Should our bid be accepted and succeed, we expect that the company that emerges from bankruptcy would offer employment to up to 50,000 associates, depending on any further actions the company may take between now and closing, and reinstate severance protections for eligible employees who accept their employment offer,” an ESL spokesman said.

“In addition, we intend to assume certain of the protection agreements that Sears has sold in the past to reassure customers who have purchased big ticket products such as appliances, televisions, lawn tractors and similar items.”

Without the bid, the 125-year-old company would likely be forced to begin shutting down and laying off its 68,000 employees.

This would mark the end of the iconic retailer, which has survived two world wars and the Great Depression but failed to rebound from several years of sales declines under the control of Lampert, a former Goldman Sachs executive turned hedge-fund manager.

Sears did not immediately respond to requests for comment.


Read more: Sears is closing 80 more stores

Lampert has blamed the company’s decline on the media, shifts in consumer spending, and the rise of e-commerce, among other reasons.

For years, he has kept the ailing retailer afloat through billions of dollars in loans from ESL, the selling off of valuable real estate, and the slow dismantling of Sears’ exclusivity over some big American brands.

SearsBusiness InsiderA Sears store in Richmond, Virginia.

He has said the measures would buy Sears more time to execute a transformation that would lead the company back to profitability.

But analysts have long been sceptical that the company could make a comeback following years of underinvestment in stores.


Read more:
Inside Sears’ death spiral: How an iconic American brand has been driven to the edge of bankruptcy

As sales have tumbled, from $US53 billion in 2006 to less than $US17 billion in 2017, Sears has closed hundreds of stores, reducing its locations to 687 stores as of mid-October, down from 1,980 stores in 2013.

Some stores have suffered severe decay, such as crumbling walls, cracked floors, collapsing ceilings, and a lack of working toilets for weeks on end, according to store visits and interviews with Sears employees over the past two years.

SearsBusiness InsiderCurtains cover empty space in a Sears store in Richmond.

In addition to maintenance problems, several stores feature barren shelves and empty floors, likely the result of suppliers exacerbating Sears’ problems by threatening to cancel contracts and demanding new payment terms for orders.

Sears employees have hung bed sheets and shower curtains from store ceilings to cover empty areas. The company has also introduced handwritten pricing signs in an apparent effort to slash costs.

Lampert responded to the supplier troubles last year by blaming the news media in a rare interview and publicly threatening to sue two of its top tool vendors.

He has also defended his investment strategy in stores.

“I was criticised for not investing enough in the stores,” Lampert said in 2013. “My point of view is we couldn’t invest in everything.”

Sears signsBusiness InsiderHandwritten pricing signs are shown in a Sears store in Richmond.

Lampert’s critics, including some former Sears executives, have also blasted him for managing a company in crisis from afar, visiting Sears’ headquarters only once a year or so for the annual shareholder meeting.

Instead, Lampert prefers to work from an office in Bay Harbour Islands, off the coast of Miami, and communicate with employees primarily through teleconference meetings.

How Lampert can win even when Sears loses

Lampert is Sears’ largest shareholder and creditor, and he’s among the first in line to be repaid if the company liquidates.

He became the company’s largest creditor by helping to prop up the ailing company for years, through loans totaling more than $US2.6 billion from his hedge fund ESL Investments.

In return, Sears pays origination fees and interest, estimated to total about $US200 million annually, to ESL.

The loans are backed by Sears’ real-estate and assets, which ESL has the right to repossess if Sears can’t pay its bills. It means ESL, in addition to Lampert, are among the first creditors to receive payment if Sears runs out of money.

How lampert wins even when sears losesBusiness Insider

Lampert also benefits from the closure of some Sears stores through Seritage Growth Properties.

After creating Seritage in 2015, Lampert orchestrated a massive real-estate deal in which Sears sold 235 stores and interest in an additional 31 stores to Seritage. Sears raised $US2.7 billion from the sale and rented back the store space from Seritage.

The transaction, known as a sale-and-leaseback agreement, is relatively common, especially among traditional retailers looking to raise money from valuable real estate that they have owned for decades.

Sears needed the deal. The retailer was at the end of its rope with net losses ballooning to more than $US8 billion in the five years leading up to the transaction, so the $US2.7 billion payment gave Sears a new lifeline.

Lampert becomes both tenant and landlord

Since then, Seritage has taken over all or some of the space in dozens of the Sears stores it owns and has rented the empty space to other retailers – like Whole Foods, Dick’s Sporting Goods, and AMC – at roughly four times the rent that Sears was paying, according to regulatory filings.

Seritage can also get paid when Sears exits a lease early. If base rent outweighs earnings over a 12-month period, Sears can break the lease, but it has to pay Seritage a full year of rent to do so.

SearsBusiness InsiderA Sears store in Richmond.

On top of paying rent to Seritage, Sears reimburses the company for taxes and maintenance on the stores it owns.

A group of individual shareholders sued Lampert, ESL, and members of Sears’ board of directors over the Seritage deal, claiming that it stripped Sears Holdings of its best assets to enrich Lampert and his hedge fund.

The suit said the Sears stores were worth far more than $US2.7 billion and that Lampert – by standing on both sides of the transaction – stood to benefit regardless.

The suit was later settled for $US40 million. The defendants said in court papers that the settlement was not an admission that the lawsuit’s claims were valid. In a May 2017 settlement hearing on the suit, a judge said it “is not clear” how the “transaction was structured to benefit Lampert at the expense of the minority holders.”

ESL has said that the Seritage transaction was “carried out on transparent terms that delivered value to all Sears shareholders, and every shareholder had the same opportunity to participate in the offerings.”

If you work for Sears and have information to share, contact [email protected]

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