Coverage: Hedge fund run by Sears CEO wants to buy retailer’s assets

ESL Investments, the hedge fund led by Sears Holdings CEO Eddie Lampert, is proposing to buy the Kenmore brand, Sears’ home improvement business, its PartsDirect division and some of the chain’s real estate.

Lauren Thomas of CNBC.com had the news:

The Florida-based firm said it believes the value of Sears’ businesses are not being reflected in the capital markets. Sears has struggled to find interested buyers, except for its sale of Craftsman to Stanley Black & Decker in 2017.

Sears confirmed receipt of ESL’s letter Monday morning, adding the proposal would be reviewed by an independent board of directors. The companies said Lampert, along with ESL President Kunal Kamlani, wouldn’t participate in any discussions, negotiations or decisions “except to the extent specifically requested by that committee.”

Sears’ stock gained 3.8 percent Monday morning on the news. Earlier, it surged 8 percent.

ESL, Sears’ second-largest shareholder behind Lampert himself, called Kenmore an “iconic brand” and said it would be prepared to close a deal for this asset within 90 days. The appliance brand recently started selling on Amazon.com.

Nathan Bomey of USA Today reported that the deal could help the struggling retailer:

But it could also help prop up the company financially for a longer period, potentially keeping stores alive as the company grapples with the retail sector’s fallout.

Any deal between Lampert and Sears would also deepen the reclusive executive’s financial entanglement with the retailer amid its decline. He has already orchestrated a series of deals in which he has gained control of the retailer’s most valuable real estate and other assets.

Lampert’s letter consisted of multiple elements. He:

• Signaled his hedge fund, ESL, “would be open to making an offer for Sears’ real estate,” which would include assuming the $1.2 billion in secured debt tied to those assets, much of which his hedge fund controls.

As part of such a deal, ESL would lease “some or all of the stores” back to the company “to allow for their continued operation,” he wrote.

Lindsey Rupp, Matthew Townsend and Katherine Doherty of Bloomberg News report the company also has an underfunded pension:

The numbers tell the story. About $1 billion of Sears debt will come due within the year, according to the company’s latest results. It has promised pensions to about 100,000 retirees, but its plan was underfunded by $1.47 billion as of Feb. 28. Its bonds are trading well below face value, with some selling for less than 50 cents on the dollar — a sign many investors doubt Sears will pay its debts in full. In the last eight years, Sears stock has plummeted about 95 percent.

“This is a slow-motion liquidation that has gone on for several years, trying to extract cash out of it,” said Craig Johnson, head of research firm Customer Growth Partners. “If you keep going, Sears the retailer will end up with more liquidity that maybe buys it a few more quarters. But to what end, if all Sears is going to end up as is four walls, a roof and a parking lot?”

A spokesman for Sears declined to comment Monday beyond the earlier statement about ESL Investments.

Monday’s plan was Lampert’s latest attempt to put off what some analysts warn may be inevitable: a bankruptcy for the 125-year-old company, whose “Dream Book” catalog was once a fixture in many U.S. homes.