Sears Holdings Corp. (OTC: SHLDQ) reached a roughly USD 5 Billion deal with its chairman, Eddie Lampert, on Wednesday to keep the Company and about 400 stores in operation.
The deal came after days of negotiations at the law firm Weil, Gotshal & Manges. Lampert has been trying to buy Sears out of bankruptcy through an affiliate of his hedge fund ESL Investments. The owner of Kmart and Sears had filed for bankruptcy in October, and Lampert’s bid was the only one that would have kept it alive.
The Company could save up to 50,000 jobs and create an infrastructure to support the continued operation of its businesses like Sears Home Services. But multiple offers that Lampert put forward over the past few weeks have fallen short.
There have been questions about the bid’s ability to cover Sears’ administrative expenses, like vendor payments and advisory fees. The bid is relying on a USD 1.3 Billion so-called credit bid – funding the deal in part by forgiving debt owed to ESL Investments.
From 11 p.m. Tuesday to 2 a.m. Wednesday ET, Sears, ESL, and their advisors were in serious talks to find a solution. Ultimately, ESL moved its offer up by roughly USD 150 Million, including taking on more liabilities.
However, Sears’ unsecured creditors are not on board with Lampert’s bid. They have said there may be claims against Sears for deals done under Lampert’s tenure as Chief Executive Officer and its largest shareholder, which include Sears’ spinoff of Lands’ End in 2014 and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears’ properties a year later.
If the unsecured creditors formally object to the bid, the bankruptcy judge will need to assess the merits of their claim on Jan. 31. Lampert needs the judge’s approval for the bid to be official.
Even if Sears ultimately emerges from bankruptcy, it will need to address the challenges that led to its initial downfall.
ESL has said it is buying only Sears’ profitable stores, but, as a whole, the Company hasn’t turned a profit since 2010.
Sears operated about 700 stores when it filed for bankruptcy, and it has since shrunk store footprint to a little over 400 through multiple rounds of closures. It could not be immediately determined whether Lampert’s bid will save all the remaining stores.