Win or lose, Sears' chairman may still come out on top
Shoppers walk by a Sears department store with store closing signs at the Grand Teton Mall in Idaho Falls, Idaho on Black Friday, Nov. 23, 2018. (John Roark/The Post-Register via AP)
Anne D'Innocenzio, The Associated Press
Published Monday, January 14, 2019 12:13AM EST
Last Updated Monday, January 14, 2019 3:46PM EST
NEW YORK -- As Sears teeters on the brink of collapse, one man stands at the centre of the fight for the future of the iconic retailer.
Eddie Lampert plays several often-conflicting roles in what could be the final chapter for the company that began as a mail order watch business 132 years ago. He's been chairman, CEO, lender, and largest shareholder -- all at the same time. And he stands to win big if Sears survives.
The fate of Sears -- and its Kmart brand -- could be decided Monday in a law firm conference room high above Manhattan, a block from Central Park. There, those who are owed money by Sears are considering Lampert's last-ditch plan to preserve 425 stores and 50,000 jobs at a bankruptcy auction.
Lampert, the only one to put forth a proposal to rescue the floundering company in its entirety, has sweetened his bid for Sears to more than US$5 billion and added a $120 million cash deposit through an affiliate of his ESL hedge fund. His original bid of $4.4 billion was rejected by the company's board.
He has publicly stated he wants to save Sears, which filed for Chapter 11 protection in October, because he says he believes there's still potential for the company, despite his past and failed efforts to turn it around.
"For as long as I have been involved with Sears, I have cared deeply about the company, its associates and the people they serve," Lampert said in a statement sent through ESL to The Associated Press. "While the opportunity I saw from the start for Sears to benefit from the disruptive changes in retail and technology has not worked out so far, it is still there to be taken. Every transformation involves perseverance and risk, but I am hopeful that we can execute better and faster on the smaller platform we are bidding on ... There is every reason to fight for its future."
But plenty of others think that sheer financial gain is behind his perseverance.
He stands to realize a big tax advantage if he keeps Sears alive by using the company's years of net operating losses to offset future taxable income if one of his other companies takes it over, says David Tawil, president and co-founder of Maglan Capital, which follows distressed companies. Tawil and others also think Lampert wants to buy the company as a going concern so he, as the only shareholder, can then control liquidation of the remaining assets.
Some would argue he's been doing that all along by selling off some of Sears' most prized brands like Craftsman. The company also spun off Lands' End. ESL has maintained that all shareholders of Sears benefited those moves because it injected much-needed liquidity into the business.
Four years ago, the company created a real estate investment trust to extract revenue from its properties. It sold and leased back more than 200 properties to the REIT, in which Lampert is a significant stake holder. ESL said that Sears received an instant influx of $2.7 billion in capital from those transactions.
"This company has been insolvent for years, except he's been playing these games," said Steve Dennis, a strategic retail adviser who held various executive positions at Sears for 12 years until 2003.
If Sears goes to straight liquidation, Lampert would be vulnerable to any legal claims stemming from deals that he previously made to sell some of the company's assets, another reason why he may be trying to dodge that outcome, according to Jeffrey H. Schwartz, principal at law firm McKool Smith P.C., which represents several Sears suppliers.
"He would be fair game," said Schwartz.
Many of the retailer's unsecured creditors, which include suppliers and landlords, are pushing for liquidation because they believe Sears is worth more dead than alive. They also believe there's value in litigation claims against Lampert, says David Wander, an attorney at Davidoff Hutcher & Citron who represents two Sears suppliers. ESL said in a filing in late December that creditors have no grounds to sue, noting that the hedge fund has extended more than $2.4 billion of secured financing approved by Sears' board of directors and a committee comprised of independent directors enabling the company to continue operations.
Sears' fate has been twisting in the wind for years, but since its bankruptcy filing, its demise has appeared imminent. At its peak in 2012, its stores numbered 4,000, a far cry from the just under 700 stores and 68,000 workers it had as of October.
Suppliers who kept Sears on a tight leash for years are now reluctant to continuing doing business with it, leaving its physical stores with bare shelves and giving shoppers little reason to walk in. The company hasn't had a profitable year since 2010 and has suffered 11 straight years of annual sales drops.
Lampert, who has no formal background in retailing, has been criticized for slashing expenses and not investing in stores. Dennis says Lampert never had a compelling vision for Sears as a going concern or showed any interest in preserving jobs throughout his tenure.
The 56-year-old billionaire stays out of the public eye for the most part, rarely visiting the company's stores or even its headquarters except for annual board meetings, according to a former Sears executive Mark Cohen, who is now director of retail studies at Columbia Business School.
"He doesn't have any physical and personal connection to the company in every conventional sense," Cohen said. "He governs by video conference."
Many analysts believe even if Lampert prevails at Monday's auction, Sears still won't have much of a future and will likely limp along for just another year.
Lampert, however, still has much more to gain.
"He has really created a very tangled web of complexity in terms of the business," said Neil Saunders, managing director of research firm GlobalData Retail. "He's in a much better position to get something out of this than any other parties."