Sears back in Eddie Lampert's hands
UPDATE: February 12, 2019: ESL Investment's affiliate company Transform Holdco completed the acquisition of Sears Holdings on Monday, according to a company press release. The new Sears, which was purchased for $5.2 billion, will include 223 Sears and 202 Kmart stores, along with brands like Kenmore, DieHard, Craftsman, Sears Home Services and Sears Auto Centers.
U.S. bankruptcy judge Robert Drain on Thursday approved Sears Holdings' $5.2 billion sale to Chairman Eddie Lampert and his hedge fund ESL Investments during a hearing in White Plains, New York, according to multiple media outlets including Reuters. The judge is expected to file his decision Friday.
The decision rejected objections from the Sears unsecured creditors committee, which is awaiting court approval to file a lawsuit against the company, but litigation is expected to continue against ESL and Lampert.
ESL's bid, the only one that would have kept Sears from liquidation, outlines a plan to keep 425 stores open and 45,000 jobs intact, but many argue the department store chain will likely need to shed more stores. Neither Sears nor ESL responded to Retail Dive's request for comment.
Lampert has once again managed to prolong the life of Sears. But creditors, employees and analysts aren't convinced it's a long-term solution.
According to David Wander, a bankruptcy partner at Davidoff Hutcher & Citron who attended the hearing to represent two Sears creditors, Judge Drain's decision went on for well over an hour. "It ended with both a warning to ESL not to cause problems with the closing and post-closing issues, and a challenge to Mr. Lampert, asking if he wants his legacy to be akin to either Jay Gould or Barney Fife," he said in an email. The references are a nod at one of the most notorious robber barons of the Gilded Age and the bumbling fictional character from the Andy Griffith Show.
"The judge also gave an advisory opinion favorable to Sears and adverse to ESL on a $166 million dispute over the contract interpretation of the asset purchase agreement, a dispute that will likely be resolved in another court," he added.
The approval of the bid means that the ability of the unsecured creditors committee (UCC) to recover the funds it allegedly is owed, is limited to their lawsuit, Josh Friedman, global head of restructuring data at Debtwire, told Retail Dive in an email.
"It is possible, however, that this sale outcome makes it more likely that the UCC is willing to fight the litigation to conclusion, hoping to obtain a significant recovery in this case, while risking little since a plan based on this sale will provide limited recoveries for unsecured creditors," he said.
For Sears, and Lampert, the sale means a second chance at achieving financial stability, Philip Emma, a retail analyst with Debtwire, told Retail Dive in an email. "What bankruptcy doesn’t solve are the issues of merchandise selection, brand perception, traffic — in effect the relationship a retailer has with its consumers," he said.
"As I look at the situation, Sears' ability to become operationally viable isn’t about what liabilities it no longer has, but what changes Sears/Kmart will make in connecting with consumers that have viewed them as damaged brands."
While the bid has been approved, Sears still faces major hurdles in the market. As a sector, department stores shrunk 13% in 2018, largely due to Sears store closures and Bon-Ton's liquidation, according to a recent report from Moody's Investors Service. Sears, however, has a deeper hole than its peers to dig itself out of, and it will still need to compete against the likes of J.C. Penney and Macy's as well as mass merchandisers like Walmart and Amazon.
"Scale, which is critical to competing in retail today, will be lacking and its core customer proposition still remains in question," Christina Boni, Moody's department store analyst, said in comments emailed to Retail Dive. "Further shrinking of the store base and cost reductions may be required as profitability remains elusive."
Follow Corinne Ruff on Twitter