Hedge fund manager Eddie Lampert on Tuesday asked Sears Holdings' (SHLD, Financial) board for permission to discuss partnering with third parties to buy some of the company’s assets after receiving ‘numerous inbound inquires’ in response to a proposal last month.
Selling off the assets would help Sears raise money as it seeks a recapitalization to pay down debt and revive its flagging business. In a letter released to the Securities and Exchange Commission, Lampert asked the board to act quickly because the price of the company’s unsecured debt had risen in the month since his previous letter, dated April 20, threatening to foil his financial strategy.
The increased price “could make the contemplated exchange of debt for equity and debt repurchases less attractive and more difficult to effect and that, even if such exchanges and repurchases are effected, would reduce the impact of the contemplated recapitalization,” he wrote.
Sears shares whipsawed in trading, eventually ending the day down 1.43% to $3.44 per share. In the past year, the struggling retail chain lost 52.8% of its market capitalization.
Lampert’s hedge fund, ESL Partners, said it was interested in buying the company’s Kenmore brand, Home Improvement business and PartsDirect business, as well as some of the company’s real estate. ESL offered to acquire the SHIP and PartsDirect businesses based on a $500 million enterprise value through cash and third-party debt or equity financing.
Lampert also said he would seek to sell the assets even if ESL Partners were not a buyer, but his Tuesday letter indicates that he would participate in a transaction.
Sears has a “go-shop” agreement with ESL that promises to allow the board the chance to find a better deal before closing on the hedge fund’s proposal, and any proposal would require the approval of the majority of shareholders.
Sears' balance sheet grew more dire in the second quarter, with cash dwindling to $182 million, down from $286 million the year before. Long-term mounted to $2.25 billion.
Eddie Lampert owns roughly 49% of Sears Holdings as its largest shareholder and has been orchestrating sales of the company’s assets to keep it afloat. In January 2017, he helped sell its Craftsman brand to Stanley Black & Decker and in 2015 he spun off its real estate into Seritage Growth Properties (SRG, Financial).
Fairholme Fund (Trades, Portfolio)’s Bruce Berkowitz (Trades, Portfolio), another long-time investors in Sears, jettisoned 27% of his Sears stake in the first quarter, shrinking his ownership to 16%.
Sears had not responded at time of writing but may soon due to Lampert’s urgency.
“Speed and certainty here are critical. It is imperative that the Special Committee allow us the ability to find a partner in accordance with the timeline necessitated by the liquidity needs of the company,” he said.
See Eddie Lampert's portfolio here.
