NEW YORK -- Eddie Lampert and his ESL Holdings hedge fund are offering to buy the rest of Sears for up to $4.6 billion in cash and stock.
The Sears chairman and ESL own just under half of the Hoffman Estates, Ill., company, according to FactSet.
Weighed down by years of declining sales and mounting debt, Sears filed for Chapter 11 bankruptcy protection in October, saying it would shutter 142 unprofitable stores in the hopes that it could stay in business.
ESL Holdings said in a regulatory filing Thursday that its nonbinding offer for roughly 500 remaining Sears stores will keep about 50,000 employees working. The offer is subject to due diligence and ESL's ability to get financing, among other things.
"ESL believes that a future for Sears as a going concern is the only way to preserve tens of thousands of jobs and bring continued economic benefits to the many communities across the United States that are touched by Sears and Kmart stores," the firm said in a prepared statement.
As recently as 2012 the company operated 4,000 Sears and Kmart stores. Including the closings after the bankruptcy filing, Sears would have just over 500 functioning locations left.
The company still employs about 68,000 people.
Others interested in acquiring Sears' assets have until Dec. 28 to submit bids under the timeline approved by the bankruptcy court. If other bids come in, the auction would be held Jan. 14.
The deal is the latest in a long series of bailouts Lampert has provided for Sears that preceded its slide into bankruptcy this year. The new bid is designed to head off outright liquidation of Sears, which has struggled to get support from lenders and suppliers who aren't sure that the retailer can survive, and Lampert's new bid may not quell those doubts.
"It's a last-ditch effort," said Farla Efros, president of HRC Retail Advisory. "They want to be able to hold on to any equity that they can actually hold on to, and it's really about ego and saving face."
The deal will hand Lampert more money and professional fees while the equity holders and lenders will see their investment evaporate, said Burt Flickinger, managing director of Strategic Resource Group, a retail-advisory firm.
"The longer Lampert stays, the more Sears and Kmart's combined viability is impaired," Flickinger said. "He's trying to perpetuate himself almost as an undertaker to drain more blood out of the body and make more money as he's doing it."
The bid would be funded with about $950 million from a new loan in addition to other debt, with some parts still being negotiated. Lampert, who holds about $2.6 billion of Sears borrowings, would convert much of that stake into equity of the reorganized business. He's also counting on the rollover of about $271 million in cash collateral that supports an existing letter of credit facility, and he's promising to assume $1.1 billion of liabilities from gift cards and rewards programs.
Lampert teamed up with hedge fund Cyrus Capital Partners this month to prepare a joint bid, Bloomberg News reported earlier. As for the new debt, Sears said it has various proposals from multiple potential asset-based lenders and is working with them on the arrangements.
The offer is contingent on ESL being released from liability related to any of its pre-bankruptcy transactions, according to the filing. The committee of unsecured creditors in the bankruptcy case has an ongoing investigation into "the possibility that ESL and other insiders may have exercised undue influence to siphon value away from the company on favorable terms," a court filing states, adding that the 2015 deal with Seritage Growth Properties is especially concerning.
Information for this article was contributed by The Associated Press; by Katherine Doherty, Josh Saul and Allison McNeely of Bloomberg News; and by Lauren Zumbach of the Chicago Tribune.
Business on 12/07/2018