The fate of Sears Holdings seems to have been determined — at least for now.
Eddie Lampert and his hedge fund ESL Investments won a bid this week to save the 126-year-old retailer from liquidation, according to multiple published reports. A closed-door auction began on Monday pitting Lampert and ESL against companies intent on selling off all its assets. The deal is said to keep at least most of the 425 Sears and Kmart stores open and save tens of thousands of jobs.
Lampert, who served as chief executive officer of Sears until the retailer declared bankruptcy in October, upped his original $4.4 billion bid to $5 billion for the company recently. Representatives from ESL would not confirm or deny the new deal, only to say that a statement would be released later today.
The pre-auction offer was for all of Sears Holding assets and included a $1.3 billion financing commitment from three financing institutions. It is not known yet whether the latest agreement includes a provision that says Lampert, who is also Sear’s largest shareholder and debt holder, could be held liable for business deals he helped execute as the head of Sears.
The official bankruptcy hearing is scheduled for Jan. 31 where a judge will have to sign off on the deal.
The struggling company, which now seems destined for a second life, was once America’s biggest retailer. At its peak in 2006, the department store had roughly $53 billion in sales and about 3,770 stores.
But changing mall patterns and e-commerce have left Sears struggling to stay afloat. At the time of its bankruptcy filing, company shares had fallen to just 16 cents a piece.
The store count had fallen, too. Sears had just under 700 stores when it filed for Chapter 11 bankruptcy protection on Oct. 15 and said it would close 142 stores nationwide, a combination of locations under the Sears and Kmart nameplates. Then another 40 store closures were announced in November. Then 80 more in December.
Last month, Lampert was the only party interested in taking Sears out of bankruptcy, submitting a $4.6 billion proposal. But the company’s one-time ceo and his hedge fund, ESL Investments, missed the Dec. 28 deadline only to bid $4.4 billion a few hours later.
The late offer was for all of Sears Holding assets and included a $1.3 billion financing commitment from three financing institutions. The deal would save the remaining stores and about 50,000 Sears and Kmart employees from losing their jobs.
But the bankruptcy court wasn’t satisfied with the offer, which was seen as not enough to cover administrative claims and the other costs of bankruptcy. So Lampert, who remains chairman of Sears, upped the bid to $5 billion. That bid included new terms, additional amounts to pay administrative claims, as well as the requisite deposit of $120 million. The bid from ESL includes cash as well as the value of loans Lampert extended to the company before its bankruptcy.
On Monday, the bankruptcy court-approved auction was matching ESL’s offer against that of the liquidators.
In a letter earlier this month, Lampert and ESL emphasized that their bid “will provide substantially more value to stakeholders than any other option, in particular liquidation, and is the best path forward for Sears, its associates and the communities.”
Roughly 68,000 people were working at the department store when it originally filed for bankruptcy last fall.
Even so, liquidators argued that lenders will get more of their money back by closing Sears and selling off its assets. Liquidators, including Gordon Brothers, Hilco Global and Great American Group, have been in discussions for some time, trying to determine the value of Sears’ assets and how to best sell them off if needed. Still, the process could take months to execute.
While it may be hard to believe in today’s retail landscape, dominated by Walmart Inc. and Amazon, Sears was once America’s largest retailer. Now, despite the attention, if Sears does actually go dark, many consumers might not even notice.
Lampert, for his part, has been widely criticized for his stewardship and a seeming lack of investment in the stores and Sears hasn’t been profitable in nearly a decade.