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If the only responsibility of business is to make a profit within the rules of the game as Milton Friedman once wrote, then ESL Investments, the hedge fund run by Edward Lampert with a controlling interest in Sears Holdings, appears to be fulfilling its duty. The same cannot be said for the parent company of Sears and Kmart, which is also run by Mr. Lampert. It is facing bankruptcy as early as next month if something isn’t done quickly to renegotiate its debt and increase revenues.
Mr. Lampert has a plan to keep Sears Holdings going, but will it help revive the retailer or just allow ESL to get more value from its investment before the decision to liquidate its remaining assets are made?
Yesterday, the board of Sears Holdings chaired by Mr. Lampert, announced that it was in receipt of a proposal by ESL that recommends it renegotiate $1.1 billion in debt that will come due in 2019 and 2020. It also proposed that the company sell real estate valued at $1.5 billion and assets including the Kenmore brand and Sears Home Services to raise another $1.75 billion.
Mr. Lampert offered last month to buy Kenmore for $400 million, a business that Sears Holdings had valued at $500 million as recently as April, according to a Wall Street Journal report.
The truth is that there may be no other option for Sears Holdings to stay in business if it doesn’t take ESL’s deal. If it used all the proceeds from the steps proposed, Sears could cut its debt from $5.5 billion to around $1.24 billion, according to a filing by ESL.
The hedge fund’s filing, with no apparent sense of irony, said the retailer “must act immediately to have sufficient runway to continue its transformation.” Sears Holdings has lost $11.7 billion since 2010, the last year it turned a profit, according to CNN. Same-store sales for the company were down 3.9 percent for the quarter despite operating in a favorable retail market. Sears and Kmart, which operated more than 3,500 stores combined when they merged in 2005, currently have fewer than 900 stores.
- Sears CEO Pushes a Rescue Plan to Avoid Bankruptcy – The Wall Street Journal
- Sears ‘must act immediately’ to extend life, Lampert’s fund says – USA Today
- Lampert’s Kenmore offer seems like more shuffling of chairs on Titanic’s deck – RetailWire
- Sears Holdings Announces Receipt Of Proposal From ESL Investments – Sears Holdings Corporation
- Sears Holdings Reports Second Quarter 2018 Results – Sears Holdings Corporation
- Sears built the suspense, then reported another bad quarter – CNN Money