By Kellie Ell
with contributions from Vicki M. Young
 on December 28, 2018
sears wall street stocks

Will Sears survive or be forced to liquidate? 

That was the $4.6 billion question on everyone’s mind the last Friday of 2018 as the 126-year-old retailer neared its do-or-die deadline.

The cut-off — at 4 p.m. ET Dec. 28 to be exact — was the time limit the courts set for Sears Holding Corp. to secure a buyer following its Oct. 15 bankruptcy.

The sale would include about 500 stores operating under the Sears and Kmart nameplates, other valuable real estate, such as the company headquarters, distribution locations, Sears Auto Centers and Sears Home Services businesses, and the Kenmore appliance and DieHard tool brands. It would also keep many Sears and Kmart stores open and save tens of thousands of jobs.

A bid, any bid, would in effect be a get-out-of-bankruptcy card for Sears.

The alternative: liquidate and sell the company in pieces.

But the prospects were bleak from the start. In fact, the only bid was actually a proposal, made by Sears chairman Eddie Lampert through his hedge fund ESL Investments. Lampert offered $4.6 billion for the company and all its assets, which included the inventory and receivables.

Kmart chairman Edward Lampert listens during a news conference to announce the merger of Kmart and Sears in New York , 2004.

Kmart chairman Edward Lampert listens during a news conference to announce the merger of Kmart and Sears in New York in 2004.  GREGORY BULL/AP/REX/Shutterstock

Lampert, who served as Sears’ chief executive officer until the company filed for bankruptcy earlier this year, argued that a sale would be better than liquidation because it would save about 50,000 jobs. As of October 2018, when it filed for bankruptcy, Sears had 68,000 employees.

But Lampert, who is also the retailer’s largest shareholder and debt holder, never actually submitted the bid. Some believe the billionaire may have had trouble securing the necessary funds for the deal because of the way it was worded. 

Earlier this month, without financing secured, Lampert missed his chance to be named the “stalking-horse bidder,” or the initial bidder. The stalking-horse bidder gets to set the lowest point for bidding so that other bidders can’t underbid the purchase price.  

Meanwhile, some members of the bankruptcy committee said liquidating and selling the company’s assets would bring greater value to shareholders, who are looking to cash in however possible.

Sears in the Wyoming Valley Mall in Wilkes-Barre Twp., Penn.,March 1, 1989.

Sears in the Wyoming Valley Mall in Wilkes-Barre Township, Penn., on March 1, 1989.  AP

The iconic Sears, once America’s biggest retailer, has been struggling to adapt in the digital age as shoppers shifted online and displayed a strong preference for direct-to-consumer brands rather than department stores. Strategic moves like acquiring apparel retailer Lands’ End and merging with Kmart in the early Aughts did little to curb declining sales. The growing popularity of big-box retailers such as Target and Walmart, which offer low-priced apparel and other goods, wasn’t helping sales at Sears either.

At its peak, in 2006, Sears had roughly $53 billion in sales and about 3,770 stores. Before it filed for bankruptcy, the retailer had fewer than 700 brick-and-mortar locations and hadn’t been profitable in years. As of October, the company’s stock had fallen to just 16 cents a share.

So when Sears Holding filed for Chapter 11 the same month, it was of little surprise to anyone. The company has been looking for ways to drum up cash anyway it can. In October it said would close 142 stores. The following month, Sears said it would close another 40 more stores in 2019, a combination of various Sears and Kmart locations throughout the country. Then on Thursday, Sears revealed another round of store closures. This time 80 locations across the U.S. — 43 Sears stores and 37 Kmart stores — are set to close in March, with liquidation sales beginning in as early as two weeks. That brings the total number of store closures to 262, or more than a third of its pre-bankruptcy store count.  

Even so, since Sears filed for bankruptcy the company has been telling the courts and investors not to worry. It claimed to have had multiple potential buyers lined up in the wings. Normally, after a company files for bankruptcy, outside firms will bid on the company and the bankruptcy court picks a winning offer. Except this time, perhaps because of Sears’ growing debt and unpromising returns, there was no one to choose from.

In a December regulatory filing, Sears Holding estimated the costs of closing the first 142 stores would be around $443 million. Broken down, those numbers equal $81 million in markdowns, $9 million in severance costs, $335 million in lease termination costs, $12 million in other charges and $6 million in depreciation in the third and fourth quarters.

While the Dec. 28 deadline was not met, the process for liquidation could still take weeks to execute. Liquidators, including Gordon Brothers, Hilco Global and Great American Group, have been in discussions for months, trying to determine the value of Sears’ assets and how to best sell them off if needed.

Representatives for Lampert and ESL Investments did not return calls for a request for comments.

In a statement, Sears said the latest round of store closures was part of its efforts “to accelerate its strategic transformation and facilitate its financial restructuring,” but would not comment on the missed deadline.