Sears Holdings Corp. is being pushed to investigate what a sizable single investor said has been an “alarming” amount of short-selling, a problem that could be solved by going private.
Memento SA, a Swiss investment manager that operates a trust for a family holding about 2 million shares of Sears, said in an open letter to the ailing department store that it’s concerned about the periodically “high levels” of short selling activity.
Short-selling is the practice of a stock being sold quickly and without ownership, with the expectation that the stock will drop, and be available for purchase at a lower price, creating an opportunity for profit.
Memento believes this has happened on “several occasions over the past two years,” leaving Sears stock pressured and volatile.
“We have learned through our own experience in lending Sears shares that several institutions/brokers were unable to timely locate shares when we recalled them,” Memento said. “It took 10 or more days for us to receive our lent shares back. We recalled about 1 million shares twice this year with various institutions/brokers in order to transfer the shares to another counter-party. In both cases our brokers failed to deliver, and the Sears share price soared between 30 percent to 100 percent after our recall.”
Sears stock was trading at $4.47 during the morning, an increase of 7.97 percent but well in line with prices over the last two months.
Memento said the company should create an independent board to look after its shares and seek investigation by the Securities and Exchange Commission to combat the practice and also suggested Sears evaluate “strategic alternatives such as going private.”
Becoming a private company would enable Sears “to focus on enhancing long-term shareholder value instead of monitoring short-selling activity in the marketplace.”
A Sears representative could not be reached for comment.
Going private seems like a longshot for Sears, but getting out of the public marketplace has been on the minds of other retailers this year.
Nordstrom was keen on going private, but plans were put on hold in October until after the holiday season, with reports circulating that the Nordstrom family was having trouble getting a deal together.
Hudson’s Bay Co. is another that may be looking to go private as well, egged on by frequent activist investor Jonathan Litt, who hinted in September that the retailer was or would be open to a buyout.
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