'It's really about ego and saving face': Lampert makes $4.6 billion bid to keep Sears alive

 
 
Updated 12/6/2018 10:55 AM
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  • Eddie Lampert and his ESL Holdings hedge fund are offering to buy the rest of Sears for up to $4.6 billion in cash and stock. The Sears chairman and ESL own just under half of the Hoffman Estates-based company, according to FactSet. Sears filed for Chapter 11 bankruptcy protection in October, weighed down by years of declining sales and massive debt.

    Eddie Lampert and his ESL Holdings hedge fund are offering to buy the rest of Sears for up to $4.6 billion in cash and stock. The Sears chairman and ESL own just under half of the Hoffman Estates-based company, according to FactSet. Sears filed for Chapter 11 bankruptcy protection in October, weighed down by years of declining sales and massive debt. Associated Press

Eddie Lampert offered to buy Sears Holdings Corp. out of bankruptcy in a bid to salvage the failing retail empire he has controlled for more than a decade.

The chairman of Sears, whose ESL Investments ranks as the biggest shareholder and creditor, outlined a $4.6 billion preliminary bid in documents released Thursday that could include a mix of cash, equity new loans and debt swaps. Lampert would take over the whole company, rather than just buying selected stores as originally planned, and preserve about 50,000 jobs, according to the documents.

It's the latest in a long series of bailouts Lampert has provided for Sears that preceded its slide into bankruptcy this year. The new bid is designed to head off outright liquidation of Sears, which has struggled to get support from lenders and suppliers who aren't sure that the iconic retailer can survive, and Lampert's new bid may not quell those doubts.

"It's a last-ditch effort," said Farla Efros, president of HRC Retail Advisory. "They want to be able to hold onto any equity that they can actually hold onto, and it's really about ego and saving face."

The deal will hand Lampert more money and professional fees while the equity holders and lenders will see their investment evaporate, said Burt Flickinger, managing director of Strategic Resource Group, a retail-advisory firm.

"The longer Lampert stays, the more Sears and Kmart's combined viability is impaired," Flickinger said. "He's trying to perpetuate himself almost as an undertaker to drain more blood out of the body and make more money as he's doing it."

The bid would be funded with about $950 million from a new loan in addition to other debt, with some parts still being negotiated. Lampert, who holds about $2.6 billion of Sears borrowings, would convert much of that stake into equity of the reorganized business. He's also counting on the rollover of about $271 million in cash collateral that supports an existing letter of credit facility, and he's promising to assume $1.1 billion of liabilities from gift cards and rewards programs.

"We believe that a future for Sears as a going concern is the only way to preserve tens of thousands of jobs and bring continued economic benefits to the many communities across the United States that are touched by Sears and Kmart stores," ESL said in an emailed statement.

Lampert teamed up with hedge fund Cyrus Capital Partners this month to prepare a joint bid, Bloomberg News reported earlier. As for the new debt, Sears said it has various proposals from multiple potential asset-based lenders and is working with them on the arrangements.

The offer is contingent on ESL being released from liability related to any of its pre-bankruptcy transactions, according to the filing. The committee of unsecured creditors in the bankruptcy case has an ongoing investigation into "the possibility that ESL and other insiders may have exercised undue influence to siphon value away from the company on favorable terms," a court filing states, adding that the 2015 deal with Seritage Growth Properties is especially concerning.

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