Eddie Lampert won the bid to reclaim Sears. Now, if a bankruptcy judge approves the deal between the billionaire and the Sears Holdings Corporation, Lampert will be in charge of one of the most seemingly impossible missions in retail history: make Sears a profitable company once again.
But this isn’t Lampert’s first attempt at reviving the retailer. The Sears chairman has held leadership positions at Sears over the last 15 years, including ceo.
Previous strategies included acquiring Kmart, a 2014 spin-off of Lands’ End and a deal with real estate firm Seritage Growth Properties. All of these deals have been scrutinized by investors looking to see if they benefited the company and shareholders in general or favored Lampert. Now some critics wonder if the billionaire should be held liable in some way for for the ultimate result of those deals. But first, creditors are trying to prevent the sale of Sears from happening in the first place.
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On Thursday, a committee of unsecured creditors filed a motion in a U.S. bankruptcy court in the southern district of New York opposing Lampert and ESL’s $5.2 billion bid, alleging the downfall of Sears was at least in part “precipitated by years of misconduct by Lampert.”
“ESL’s current bid to ‘save the Company’ is nothing but the final fulfillment of a years-long scheme to deprive Sears and its creditors of assets and its employees of jobs while lining Lampert’s and ESL’s own pockets,” the filing stated.
“By accepting ESL’s bid to acquire Sears, made in large part through a credit bid of disputed claims, the debtors — led by Board members who were handpicked by and are beholden to Lampert and ESL — have capitulated to Lampert’s and ESL’s efforts to control the remaining assets of Sears and deprive unsecured creditors, already damaged by Lampert’s and ESL’s multiyear and multifaceted scheme, of any chance of a recovery.”
Revenues have slipped from more than $50 billion to under $17 billion in the last 10 years. The deal with Seritage Growth Properties involved transferring some valuable Sears real estate to the real estate group, of which Lampert is a committee member. Sears in turn paid Seritage millions in rent. According to the filing, Lampert only arranged the deal for his own benefit.
But Lampert and ESL argued that the deal will save an iconic retail institution, more than 400 Sears and Kmart stores around the country and approximately 45,000 jobs.
“We believe Sears has a future as a profitable company that can succeed in today’s competitive retail landscape,” ESL said in a statement released on Thursday following the announcement that Lampert won the bid for Sears.
Following the news of the Creditor Committee’s motion, ESL released another statement saying all transactions involving Sears were done in good faith for the benefit of investors.
“ESL Investments, Inc. has been a constant source of financing for Sears Holdings over the past several years, including through the extension of $2.4 billion in various secured financings to the company. These financings and other transactions involving Sears’ assets were all undertaken to facilitate the company’s continued operations and implement its transformation plan…Over the past several months, we have provided countless pages of documents to the Creditors’ Committee and held numerous discussions with their advisors. We have cooperated fully with their review and remain confident that the processes we followed are unimpeachable. We reject any assertion to the contrary and will vigorously contest any effort to assert claims against ESL, its principals or affiliates concerning these transactions,” the statement said.
Either way, there is no denying that Lampert is still getting the company at a huge discount. And at 126 years old — in the age of Amazon — Sears is clearly past its prime, which leads many to wonder why Lampert wants it in the first place. Not to mention the fact that more than 3,000 stores were closed, 250,000 jobs cut and billions of dollars in value lost during Lampert’s “reign” of Sears, according to the filing.
“In effect, Lampert and ESL managed Sears as if it were a private portfolio company that existed solely to provide the greatest returns on their investment, recklessly disregarding the damage to Sears, its employees, and its creditors,” the court document states. “As Sears’ ceo, Chairman of the Board [and] controlling shareholder… Lampert was hopelessly conflicted as he presided over Sears’ descent into insolvency and a persistent state of liquidity crisis. Time after time, Lampert used those self-made crises to divert more of Sears’ assets for his and ESL’s benefit or to burden Sears with more and more purported ‘debt’ obligations (held by ESL, of course) that would never and could never be paid back without an unfathomable turnaround of Sears.”
There is one thing Lampert’s résumé seems to be missing though: retail experience. Lampert worked at Goldman Sachs before forming ESL Investments in 1988.
Craig Johnson, founder of research and consulting firm Customer Growth Partners, said Lampert, an investor, was never fit to run what was once America’s biggest retailer in the first place.
“He’s good at vulture investing and I think he knows real estate,” Johnson said. “But as a retail ceo over the last dozen years it’s been a disaster.”
Meanwhile, creditors have been pushing for liquidation since the Oct. 15 bankruptcy, saying it’s the fastest way to get their money back. A bankruptcy judge will determine if the bid is accepted during the Feb. 1 hearing.
The Sears bankruptcy is just one in a string of retailers to file bankruptcy in recent years, including David’s Bridal, Bon-Ton Stores, Claire’s, Nine West Holdings, Alfred Angelo, The Limited, Wet Seal, True Religion and Gymboree.