Edward Lampert is pushing for a more aggressive breakup of Sears Holdings Corp. as the hedge-fund manager aims to salvage what’s left of the struggling retailer and stave off a potential bankruptcy filing.
The announcement sparked a share jump of as much as 9 percent, to $3.28 each, on Monday.
Lampert’s hedge fund, ESL Investments Inc., said selling the appliance maker Kenmore, home-improvement services and an appliance part-replacement business would improve the debt profile and liquidity of the beleaguered retailer, according to a written statement from Sears. ESL would also be interested in making an offer for real estate—if requested by the retailer’s board. Lampert’s fund could then lease some or all of the stores back to the company.
Kenmore is among the brands that could have substantial value. Amazon.com began selling the appliances on its site almost a year ago.
ESL, the department-store chain’s largest shareholder, expressed interest in buying Sears assets for cash financed with equity contributions from ESL as well as third-party debt financing. The hedge funds’s non-binding proposal to acquire the home services and PartsDirect assets is based on a $500 million enterprise value, according to the letter.
ESL also made an offer for Sears real estate, which includes the assumption of the $1.2 billion of debt obligations secured by the holdings.
Regardless of whether ESL becomes the ultimate buyer of Sears assets, the fund says that it is interested in seeing that Kenmore, Sears Home Improvement (SHIP) and PartsDirect are divested in the near term in “a transaction that delivers the greatest value” for the company, ESL said in a statement to Bloomberg.
The deal would be in connection with the company’s exchange offer of 50 percent of about $600 million in outstanding second-lien debt, and a tender offer for about $900 million in unsecured debt. To assist with the potential transaction, Sears retained Moelis & Company as financial adviser and Cleary Gottlieb Steen & Hamilton LLP as legal counsel.
The moves would further tie Sears to the hedge fund of its CEO and biggest investor, which already lent the retailer $100 million earlier this year. The company’s letter clarifies that Lampert and Kunal Kamlani, ESL’s president, will not participate on behalf of Sears in any discussions, deliberations, negotiations or decisions with respect to the potential transaction, except if explicitly requested by the board.
Sears has been trying to hold onto its business amid falling store traffic and sales. The 125-year-old retailer, based in Hoffman Estates, Illinois, has relied on asset sales and infusions from Lampert to offset billions of dollars in losses. It’s also closed hundreds of stores and cut more than $1 billion in expenses.