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Sears CEO Eddie Lampert's ESL hedge fund plans to buy Sears' assets

ESL Investments, the hedge fund led by Sears Holdings CEO Eddie Lampert, has made a proposal to purchase the Kenmore brand, Sears' Home Home Improvement, its PartsDirect division, and some department store real estate.


Sears confirmed receipt of the ESL letter on Monday morning, adding that the proposal was made by one independent board. The companies stated that Lampert, along with ESL President Kunal Kamlani, would not participate in discussions, negotiations or decisions "except in the extent explicitly requested by this committee".

Sears' stock rose more than eight percent on Monday morning news.

ESL, Sears' second-largest shareholder behind Lampert himself, called Kenmore an "iconic brand" and said he would be willing to make a deal for that asset within 90 days. The device brand has recently started selling on Amazon.com.

Regarding Sears' Home Improvement and PartsDirect businesses, the Lampert hedge fund said it would value those assets together at $ 500 million and pay them in cash.

ESL also said it would be "open to make an offer" for Sears Real Estate, including the $ 1.2 billion takeover in debt obligations. The company said the expectation in this business would be that Sears would continue to operate and lease back from ESL.

"In our view, the pursuit of these divestments … will be an important source of liquidity for Sears and could prevent depreciation of such assets," ESL said.

After his disinvestment by Craftsman last year, Sears confirmed that he has tried to outsource some of his other assets. The department store chain has recently strengthened its home services business and hired more people in this area.

Sears now sells his unprofitable stores as another way to raise money.

Earlier this year, Sears announced a round of more than 100 branch closures (under both the Sears and Kmart banners), all of which should be completed by the end of this month. The company has recently raised enough money to contribute $ 407 million to its plan to facilitate and facilitate the sale of 140 additional properties.

These 140 properties are kept on the Hack Block by real estate analysts for the next Sears locations. Sears has not published a list of these stores, nor has it said when those sales will take place. The department store chain is currently selling another 16 stores online.

In response to ESL, Sears said there could be no guarantee that a transaction would take place. The company will not comment further "until it is determined that additional disclosure is appropriate".

Sears' stock fell more than 70 percent a year ago.

See a full copy of ESL's letter to the board of directors of Sears:

Dear Sir or Madam,

Funds affiliated with ESL Investments are the largest and largest lenders shareholders , Sears Holding Corporation ("Sears"). We continue to value Sears and its underlying assets and firmly believe that with a suitable runway, Sears will be able to complete its transformation to respond to the challenging retail environment. We also believe that the portfolio of Sears assets has substantial value that is not reflected in the capital markets or maximized in the current organizational structure. These assets include the Kenmore brand and related assets ("Kenmore"), the home improvement business of Sears Home Services ("SHIP") and the Parts Direct business of Sears Home Services ("Parts Direct").

We understand that Sears has been marketing some of these assets for nearly two years, but could not reach agreement with potential buyers on acceptable terms, with the exception of the Craftsman divestiture. We would like to inform you that we have recently informed you that Sears is aggressively seeking a divestiture of all or part of Kenmore, SHIP and Parts Direct and expresses ESL's interest in participating in such divestments. We believe that the continued follow-up of these divestitures will demonstrate the value of Sears' portfolio and provide Sears with an important source of liquidity that could help prevent such assets from being impaired. Specifically:

0 ESL believes Kenmore is an iconic brand with considerable value and Sears should aggressively pursue a divestment of all or part of Kenmore in the near future. If Sears believes it would be helpful, ESL would be prepared to submit a proposal for such a transaction and believes that it would be able to complete such a transaction within 90 days.

0 ESL is pleased to submit a non-binding expression of interest for the acquisition of SHIP and Parts Direct under the following terms.

In addition, upon request from the Sears Board of Directors, ESL would be prepared to make an offer for Sears' real estate (including the $ 1.2 billion debt secured by such property) for some or some of them All businesses enter into an ongoing Master Lease Agreement to enable their continued operations.

ESL would like to emphasize that its primary interest is that the Kenmore, SHIP and Parts Direct Divisions will be sold to a full and fair value in the near future, whether ESL or a third party is the ultimate purchaser of Sears Able to improve its debt profile and its liquidity position. In order to ensure a fair trial, ESL hereby confirms that:

0 Edward S. Lampert and Kunal S. Kamlani will not engage in discussions, consultations, negotiations or decisions on behalf of Sears (as officer or director) a potential transaction involving ESL as buyer except to the extent expressly required by the committee referred to below.

0 ESL will not participate in such a transaction as a buyer unless such transaction is (i) recommended by the Transaction Committee of the Affiliate (or any other independent directorate) of the Sears Board of Directors, which has full authority (ii) be approved by the holders of a majority of Sears shares held by altruistic shareholders.

• ESL would accept that any transaction involving ESL as a buyer is subject to a go-shop process on reasonable terms.

We believe that compliance with the above procedures will ensure that any transactions with ESL are made on fair and reasonable terms.

The key terms of our proposal to purchase SHIP and Parts Direct are listed below:

Rating: We are interested in 100% of the capital of SHIP and Parts Acquire directly based on a company value of $ 500 million. The purchase price would be paid in cash, and SHIP and Parts Direct would be acquired on a debt-free and cashless basis with normalized levels of working capital.

Other Agreements: We expect Sears to enter into certain interim and long-term agreements with SHIP and Parts Direct to enable the continued operation of these companies as they operate today. These agreements would include transitional contracts with Sears for a specified period of time, a trademark license agreement for SHIP and Parts Direct, and other common ancillary documents to a transaction of this nature. Our offer is also subject to the necessary consents to assign the supplier contracts to the buyer from the suppliers of SHIP and Parts Direct.

Financing: The cash compensation for the transaction will be financed with own funds from ESL and debt financing. In due course, we will also be ready to discuss with you the possibility of working with third parties interested in providing equity financing. We do not expect any financing terms as we intend to have our financing fully committed when a definitive agreement is signed.

Swap and tender offers: The transaction would take place in connection with (i) an exchange offer relating to 50% of approximately $ 600 million outstanding 2nd Pfand bond not secured by equity property Sears of Equal Value and (ii) a tender offer for 100% of Sears' outstanding unsecured debt of $ 900 million at a discount to current trading prices or alternatively to Sears Equity. ESL believes that the exchange offer and takeover bid would be beneficial to bondholders by providing liquidity to Sears by reducing their debt obligations and to shareholders by reducing risk and giving Sears time to pursue value maximization strategies. Assuming that the proceeds from the planned divestments are sufficient to enable Sears to substantially reduce its total debt, ESL would consider participating in such an offer for exchange.

Timing and Advisors: We are ready to seek the usual due diligence for a transaction in [nature] and make final arrangements as soon as possible. We believe that an accelerated process is in the best interest of all involved. We have retained Moelis & Company as financial adviser and Cleary Gottlieb Steen & Hamilton LLP as legal advisor.

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