Sears: the Last Gasp?

Written by Bill Leebens

We’ve written about the decline and fall of Sears a zillion times in Industry News, most recently in Copper #45, Copper #69, and  Copper #70. The dual themes of all these stories have been “how are they staying alive?” and “what’s taking so long for them to disappear?”

Well, the end may be in sight. Operative word is, of course, may.

The latest development is that Eddie Lampert, venture capital mogul and former chairman of Sears Holdings, has made a string of offers for what’s left of Sears, starting at $4.4 billion, and at last report, up to $5 billion in cash. The question is: why?

Through all the store closings and sell-offs of valuable brand names like DieHard and Craftsman, it really appears that only one person has benefited: Lampert. Real Estate Investment Trusts (REITs) owned by his group Seritage Growth Properties—and there is apparently no irony intended in that “Growth”—have managed to leverage real estate formerly occupied by Sears stores into millions of dollars in profits. Maybe billions: the accounting is a little circuitous, and far from transparent, or GAAP-oriented.

The options remaining are few—two, to be exact: liquidation, meaning whatever assets Sears Holdings still possesses will be sold off to pay creditors; or acceptance of Lampert’s buyout offer in some form. Many creditors feel they have a better chance at being paid with the liquidation option; a minority group opt for Lampert’s offer.

Viewed from the outside, it’s easy to understand the sentiments expressed by Georgetown University business prof Sandeep Dehiya, as quoted in a Chicago Tribune article:

“With its large real estate holdings, creditors may see it as ‘more valuable dead than alive,’ Dahiya said.

“The $5 billion rescue bid would have been more compelling if it hadn’t come from ESL [Lampert’s hedge fund—Ed.], Dahiya added.

“While Lampert was CEO, he and his hedge fund threw Sears several lifelines as the company continued losing money, closing stores and laying off workers.

“ ‘(Creditors) may simply feel, ‘We’ve seen this movie before, and we don’t think anything different will happen,’ ” he said.”

Sears will make a decision between the two options shortly after the time when this article appears—so we’ll keep an eye on developments.

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