By Suzanne Kapner, Lillian Rizzo and Soma Biswas
Billionaire Edward Lampert won a bankruptcy auction for Sears
Holdings Corp., keeping the struggling department store chain from
shutting all its remaining stores, according to people familiar
with the matter.
Mr. Lampert, a hedge-fund manager who steered Sears into
bankruptcy, prevailed by sweetening his offer to about $5.3 billion
from $4.4 billion over several weeks of negotiations with Sears's
board and creditors, the people said.
His last-ditch rescue plan would keep roughly 400 stores open.
The offer beat out a bid, which was supported by most Sears
creditors and landlords, by Abacus Advisory Group LLC to close all
the stores and sell the inventory. Reuters earlier reported Mr.
Lampert had prevailed.
Sears's longtime leader, who is also its largest creditor and
biggest shareholder, has scrambled to retain control of the company
since it filed for protection from creditors in October. He stepped
down as chief executive at the time but remained chairman.
The rescue plan must be approved by the bankruptcy judge at a
sale hearing set for Feb. 1 in White Plains, N.Y.. Judge Robert
Drain, who is overseeing the case, had pressed Mr. Lampert to reach
a deal to keep some stores open and save thousands of jobs, one
person said. Some creditors still object to Mr. Lampert's plans and
prefer a total liquidation, this person added.
With more than $7 billion in assets when it filed for chapter
11, Sears is one of the biggest in a string of recent U.S. retail
bankruptcies. The company, which also runs the Kmart chain, has
already closed about 200 of the roughly 700 stores it had when it
filed for protection.
The agreement, reached in early-morning hours Wednesday, capped
a tense day of negotiations. By 11 p.m. Mr. Lampert's offer
appeared dead, the people said.
The two sides, huddling in neighboring conference rooms at the
New York law office of Weil, Gotshal & Manges, continued
talking until about 2 a.m., when Mr. Lampert raised his offer by a
$150 million, cinching the deal, the people said.
One of the issues complicating the negotiations is that Sears
continues to burn through cash at a rapid rate, one of the people
said.
The deal releases Mr. Lampert and others from liability over
future lawsuits related to a series of spinoffs that creditors say
might have siphoned valuable assets away from the company, the
people said. Mr. Lampert has repeatedly denied those
accusations.
The agreement also includes about $1.3 billion in debt
forgiveness to Mr. Lampert's hedge fund, ESL Investments Inc.,
which raised further objections from creditors.
The 126-year-old Sears was once the dominant retailer in
America. It will emerge, though, from bankruptcy as a shadow of its
former self, making it difficult to compete against healthier
chains with thousands of locations apiece -- such as Walmart Inc.
and Home Depot Inc. -- as well as with the omnipresent Amazon.com
Inc.
"I don't know what's left to shop there for," said Patrick
Garrett, a retired consultant. Ever since the Sears near his home
in Calabasas, Calif., closed in November, he has visited Lowe's
Cos. for Craftsman tools, Best Buy Co. for appliances and J.C.
Penney Co. for clothes. "I'd have to drive 40 miles to get to the
nearest Sears now," the 70-year-old said.
Retailing has become a game of scale to cover the fixed costs of
operating stores, warehouses, e-commerce sites and a supply chain
that knits them all together. Sears, by contrast, has been
shrinking for years by closing stores and shedding businesses and
brands, including the Lands' End Inc. clothing brand and Craftsman
tools.
At its peak in 2006, a year after Mr. Lampert took control by
merging Kmart and Sears, the company operated more than 2,300
stores. In October, it entered court protection with fewer than 700
locations and had racked up seven years of losses. Annual sales had
shriveled to $16.7 billion, down from $49 billion in 2005.
At the time of the Kmart merger, Mr. Lampert was a Wall Street
hotshot who was often compared with legendary investor Warren
Buffett. The downfall of Sears hasn't only damaged the company's
reputation, but Mr. Lampert's as well.
Now, he has what might be his final chance to prove that his
contrarian strategy is the right one. He has long argued that as
retailing moves online, chains need fewer big-box stores. His
mantra for Sears is to turn it into an "asset-light" company.
Yet, there are few precedents of big retailers shrinking their
way to prosperity. A rare exception is Federated Department Stores
Inc., which filed for bankruptcy protection in 1990 as part of
Campeau Corp., emerged and went on to swallow up rivals to become
the current Macy's Inc.
"Sears is so far below critical mass," said Steve Dennis, a
consultant and former Sears executive, who left the company before
Mr. Lampert took control. "What is it about having fewer stores --
which doesn't allow you to spend as much on marketing or have
supply-chain efficiencies -- that suddenly makes it a successful
strategy?"
In recent years, chains such as Toys 'R' Us Inc., Sports
Authority Inc., Bon-Ton Stores Inc. and RadioShack disappeared
after filing for bankruptcy protection. Others such as Mattress
Firm Inc. and Payless ShoeSource have re-emerged from bankruptcy
after shedding debts and shutting hundreds of stores.
Mr. Lampert also is buying the Kenmore and DieHard brands, the
company's Sears Auto Centers and its Home Services business, along
with inventory, intellectual property and other assets. The rescue
plan will save as many as 50,000 jobs.
"Our proposed business plan envisages significant strategic
initiatives and investments in a right-sized network of large
format and small retail stores, digital assets and interdependent
operating businesses," Mr. Lampert wrote in a Dec. 28 letter to
Sears's financial advisers. "We believe that our strategy will
enable Sears to prosper in an integrated consumer and retail
landscape."
The hedge-fund manager raised his offer by $600 million last
week to about $5 billion. The revised offer included no new cash
but promised to assume liabilities that could drive the retailer
further into debt. It also included an additional 57 real-estate
properties as well as accounts receivable and inventory.
Not everyone views Sears as a lost cause. Some of its surviving
stores are in healthy malls, and other locations in rural areas are
facing less competition as rivals have closed stores or gone out of
business. But big changes need to happen to make Sears viable,
analysts say.
"We think there is a path for them to survive, but they've got
to dump apparel and devote the whole store to hard lines," said
Craig Johnson, the president of consulting firm Customer Growth
Partners. "Sears still has a lot of credibility in appliances, and
they can rebuild that business."
Former executives say that idea was considered years ago but
deemed unfeasible, because consumers purchase big-ticket items such
as appliances too infrequently. It would also be dependent on
Sears's ability to reduce the size of its stores, something it has
been trying to do by leasing excess space to grocery stores and
competing retail chains.
A blueprint for the company's future could lie with a remodeled
store in Oak Brook, Ill., that opened in October. At 62,000 square
feet, it is about one-third of its original size. The shrunken
store no longer sells consumer electronics and jewelry, although
most other product categories are available.
Perhaps a bigger stumbling block to Sears is Mr. Lampert
himself. Although he has poured money into the company through
short-term loans and said he has tried to do everything to keep it
afloat, his contrarian approach to running the retailer --
including a reticence to upgrade stores without the promise of a
return on that investment -- has proven disastrous.
"Any model with Eddie involved is a no-go," Mr. Johnson
said.
--Patrick Fitzgerald contributed to this article.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com, Lillian Rizzo
at Lillian.Rizzo@wsj.com and Soma Biswas at soma.biswas@wsj.com
(END) Dow Jones Newswires
January 16, 2019 11:06 ET (16:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Sears (CE) (USOTC:SHLDQ)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Sears (CE) (USOTC:SHLDQ)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024