DISCUSSION
Sears Holdings sues Eddie Lampert for illegally stripping retailer of its assets
Written by George Anderson
Photo: Wikipedia/Breawycker
In 2004, when Eddie Lampert merged Sears and Kmart into Sears Holdings, some regarded the hedge fund mogul as another Warren Buffet. His unique insight as a retail industry outsider, some said, would allow him to see the value in the two retailers and create a visionary plan that would return them to the glory of their respective pasts.
It wasn’t too long, however, before company employees, vendors and retail industry watchers started to question whether Mr. Lampert was set on establishing a legacy of retail genius or systematically stripping away the assets that gave Sears Holdings its value.
As everyone knows, Sears Holdings filed for Chapter 11 bankruptcy protection in October of last year and eventually sold about 400 stores and its remaining assets to Transform Holdco, controlled by Mr. Lampert in February.
Now, Sears Holdings is suing Mr. Lampert and a number of former board members, including current Treasury Secretary Steve Mnuchin, for taking billions of dollars out of the company for their own benefit while leaving nothing for anyone else.
The suit, CNBC reports, points to deals such as the spinoff of Lands’ End and the creation of the real estate investment trust (REIT) Seritage Growth Properties as cases where Mr. Lampert and big shareholders received disproportionate benefits.
The suit cites an email from former Sears Holdings CFO Robert Schriesheim. In an attempt to explain the Lands’ End deal to a colleague, Mr. Schriesheim wrote, “[Mr. Lampert] was trying to optimize cash for [Sears] while maximizing his [ESL Investments] equity stake ... because he knows that [Lands’ End] is worth a great deal outside of [Sears].”
According to the court filing, Mr. Lampert, ESL and other large shareholders divided an associated dividend of $500 million before Lands’ End was spun off. On the first day, Lands’ End was publicly listed, its stock value exceeded $1 billion, with Mr. Lampert’s share at around $490 million.
The suit also claims that Mr. Lampert intentionally undervalued 266 properties set off as part of the Seritage deal, which were outside of the control of Sears Holdings or its creditors once the REIT was set up.
In the end, USA Today reports, the suit claims that, were it not for Mr. Lampert’s self-serving actions over the years, the company “would have had billions of dollars more to pay its third-party creditors today and would not have endured the amount of disruption, expense and job losses resulting from its recent bankruptcy filing.”
For its part, ESL Investments has issued a statement claiming that its actions during each and every transaction while it controlled Sears Holdings were “unimpeachable.”