Hedge Fund Manager and Sears Holdings (NASDAQ: SHLD) CEO Eddie Lampert has gone to great lengths to keep the legendary retail giant alive in recent years. Unfortunately, the company has needed massive liquidity injections as the declining mall traffic and Lampert's strategic missteps have led to years of massive losses at Sears Holdings.
Today Sears Holdings faces a looming liquidity crisis. Most of his debts will be due within the next two years, while his cash reserve and wealth base are both dwindling rapidly. As a result, bankruptcy is likely to occur in the next one to two years unless there is an astonishing turnaround.
But Lampert does not make any moves yet. On Tuesday, ESL Investments (its hedge fund) offered to buy the home improvement subsidiary of SHIP-Sears – and the company's Kenmore appliance brand. But while these contracts (if completed) could save some time for Sears, they would not nearly save.
A New Offering
In April, ESL made a non-binding proposal to buy SHIP and Sears. Parts Direct subsidiary for a total of $ 500 million. The hedge fund also expressed its interest in offering for Kenmore.
At the time, ESL said, "We are ready to move forward as soon as possible to meet the usual due diligence requirements for a transaction of this nature and to make final arrangements." A few weeks later, the board of Sears Holdings announced that It had begun a formal process selling SHIP, Parts Direct and Kenmore. Nevertheless, there was no movement towards a transaction in the following months. On Tuesday, ESL submitted a more detailed – but still non-binding – proposal to acquire SHIP for $ 70 million (plus up to $ 10 million in contingent payments) on the unit's performance). It also offered $ 400 million for Kenmore. ESL has abandoned its proposal to buy Parts Direct because of the complexity of separating it from Sears' other operations
ESL hopes to sign contracts for SHIP and Kenmore by August 24 and close both contracts within 60 90 days. Sears Holdings would have the opportunity to find better deals for both businesses and could exit the proposed deals with ESL without sanctions.
Obviously, $ 470 million is a significant portion of the cash, even for a Sears Holdings-sized company. But this sum fades compared to the recent losses of the company. Sears has burned at least $ 1 billion in cash over the last five years, and 2018 is on the right track to be no different.
In addition, the few remaining Sears bulls hoped that ESL would offer more money for these assets , Clearly, ESL's $ 500 million preliminary offer to SHIP and Parts Direct places the greatest emphasis on the latter, which is likely to build on Sears Holdings by the end of 2018.
Meanwhile, Kenmore was expected to "get at least $ 500 million in a sale" after an April article The Wall Street Journal . It's still possible that another buyer may appear listing ESL's $ 400 million offer – but that's not likely. Kenmore has been in the auction block for years and has not received any serious interest from other potential buyers.
Real Estate Is Sears Holdings 'Only Hope
In ESL's Recent Letter to Sears' Special Committee Board When assessing asset sales, the Lampert hedge fund said it would consider virtually all to buy remaining properties from Sears. Lampert had already mentioned this possibility in April, but the new letter proposed this approach more vigorously.
Lampert stressed on behalf of ESL that the sale of the remaining real estate in large quantities would speed up the process of monetization and give more certainty in terms of selling price. Given the financial plight of Sears Holdings, it's hard to argue with that logic.
However, at the beginning of this year, Sears Holdings owned only 307 of its stores and 138 of these properties were valued at an average of $ 7.1 million each. If this number is roughly in line with the company's other businesses, that would mean a total value of just over $ 2 billion for Sears' business. In addition, since the beginning of the year, Sears has sold hundreds of millions of dollars of real estate to raise liquidity.
Including the value of sub-market leases, distribution centers, and corporate headquarters, Sears could still offset as much as $ 3 billion in real estate offset by real estate debt of more than $ 1 billion. But even if Sears Holdings could raise $ 1.5 billion (net of debt) from the sale of the remaining property, it could only delay the death of the company by a year or two.
At this point, the possibility of a large real estate windfall is one of the last sources of hope for the Sears Bulls. Depending on what ESL offers for the remaining real estate, this last hope could quickly disappear and make bankruptcy even more inevitable.