In an ostensible effort to raise money, ESL Investments founder Eddie Lampert wrote a letter Monday pushing Sears Holdings (SHLD, Financial), where he is the largest shareholder, to sell assets, possibly to him.
Lampert urged the company to divest its Kenmore home appliances brand and the Sears Home Improvement business and PartsDirect business of its Sears Home division. Lampert’s hedge fund, ESL Investments, offered to buy any or all of the assets and submitted a non-binding proposal to acquire the Sears Home Improvement Business and PartsDirect for their enterprise value of $500 million in cash.
ESL also said it would be willing to consider purchasing Kenmore and real estate assets from the struggling retailer and leasing the real estate back to the stores.
“We continue to see value in Sears and its underlying assets and believe strongly that with an appropriate runway Sears will be able to complete its transformation to respond to the challenging retail environment,” ESL Investments wrote in the letter. “We also are of the view that the portfolio of Sears' assets has substantial value that is not being reflected in the capital markets or being maximized under the current organizational structure.”
The divestitures would supply an “important source of liquidity” for the retailer whose financials and market value have deteriorated over recent years, ESL said.
In a response letter, Sears’ board of directors said it would put together a committee of independent directors to consider ESL’s proposals.
Sears has taken billions in losses since 2012 and in 2017 reported its 11th consecutive year of falling revenue. It ended 2017 with $182 million in cash and $2.25 billion in debt. Lampert, a hedge fund manager who raked in billions on investments in Autozone (AZO, Financial) and AutoNation (AN, Financial) in the 2010s, took over as CEO of Sears in 2013. Since then, despite his turnaround efforts, the stock has declined 90% from a price of $34 to the $3.24 per share it traded at Monday.
Sears’ stock has tumbled 14% year to date. In the fourth quarter, it produced revenues of $4.4 billion, a decline from $6.1 billion in the comparable quarter of 2016. The company attributed more than half of the decrease to closures of its Kmart and Sears stores, partially offset by an extra week in the quarter. Same-store sales fell 15.6% for the fourth quarter, with Kmart down 12.2% and Sears down 18.1%.
Net income totaled $182 million, versus a loss of $607 million a year earlier, and included a $470 million tax benefit related to U.S. tax reform and $72 million non-cash accounting charge due to the impairment of the Sears trade name. The prior year also included a net loss of $381 million charge related to the impairment of the trade name.
Lampert’s letter sent Sears shares up around 7.64% on Monday.
