Sears explores sale of Kenmore, other units to CEO's hedge fund
- Sears Holdings is formally exploring the sale of its Kenmore appliance brand, as well as its Home Improvement Products, Home Services and Parts Direct businesses, to the hedge fund run by Sears CEO Eddie Lampert, the retailer said Monday in a press release. The move follows a letter from Lampert's fund, ESL Investments, last month indicating interest in the assets.
- Sears' board has formed a special committee to consider the asset sales to ESL, according to Monday's release. The committee's task is to "evaluate ESL's proposal, to actively solicit third-party interest in the sale assets and to explore any other alternatives with respect to the sale assets that may maximize value for the company," Sears said.
- Sears has hired investment banker Centerview Partners and law firm Weil, Gotshal & Manges as advisors, the company said. Sears cautioned that a sale may not materialize from the talks and said that the company will not comment further on the process unless "it determines that additional disclosure is appropriate."
If at first you can't sell an asset, try selling it to your CEO.
Last year, Sears was looking to sell Kenmore along with its iconic tool brand Craftsman in an effort to raise cash for the company. It won a buyer for the latter, but not the former. That could make Lampert the buyer of last resort.
Not every retailer, of course, has that option. Sears — uniquely, among publicly traded retailers — has relied on its CEO and its CEO's hedge fund for cash. The company has borrowed hundreds of millions of dollars from ESL, and it has sold off hundreds of properties to a venture controlled by Lampert and his fund. It also spun off the Sears Canada business — which liquidated last year in the Canadian version of bankruptcy — but Lampert more or less held on to control through a combined majority interest held by ESL, Sears Holdings and Lampert himself.
S&P analyst Robert Schulz told Retail Dive in April that a sale of Kenmore and the other units would be "consistent with their approach of selling legacy assets to fund any cash burn" as the retailer "continues to close stores rapidly and work toward monetizing the hard assets they have."
Schulz pointed to Craftsman as a potential model for a Kenmore sale. With the sale of the tool brand to Black & Decker, Sears is able to keep selling the tools in its stores and source products independently.
The retailer, beginning last year, has tried to broaden the audience and distribution of Kenmore — which over the years as lost significant market share but remains a major brand — by selling products through Amazon. (The department store retailer's relationship with Amazon has recently deepened through a new partnership to sell tires.)
Lampert considers the potential sale of Kenmore and other assets a win-win: He said in his letter to Sears, "ESL would like to emphasize that its principal interest is seeing that the Kenmore, SHIP and Parts Direct businesses are divested in the near term at a full and fair value, regardless of whether ESL or a third party is the ultimate buyer, so that Sears is able to improve its debt profile and liquidity position."
To some, such a sale may seem stuffed full of conflicts of interest, but it's one the company has managed so far. "As a governance matter, Sears would have to be focused on perception and reality of this," Schulz said. "They would have to take perception and reality very seriously." He added that the retailer would likely "document any kind of arm's-length discussions" to avoid governance issues and conflicts. (Sears has said that Lampert and a board member from ESL would not be party to the negotiations from Sears' end.)
Brian Kochisarli, a senior counsel with Davidoff Hutcher & Citron, told Retail Dive last month that Lampert as CEO of Sears is "effectively wearing two different hats," with a duty of loyalty to Sears' shareholders and as CEO of ESL, which may present a "competing obligation." (Complicating things further is Lampert's personal stake in Sears and ESL.) Along with the value of the assets, Kochisarli said that Sears' board would likely need to consider the implications of the Kenmore and other assets in any potential Sears bankruptcy proceedings.
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