Yahoo Finance Sears liquidation looms after $4.4bn takeover deal faulters
Sears, once the world’s largest retailer, appears to be heading into liquidation after failing to reach a $4.4bn takeover deal with the financier Edward Lampert.
The 126-year-old company has been struggling for years and filed for bankruptcy protection in October. The failure to strike a deal to stave off collapse will make it the most high-profile victim in the apocalyptic wave of bankruptcies sweeping over the US bricks-and-mortar retail sector.
Robert Drain, the US bankruptcy judge presiding over the case, gave Lampert until 4pm Wednesday to pay a $120m deposit to keep his bid alive. Lampert believes he can save 55,000 jobs if Sears approves the deal.
The company argued the offer did not cover its bankruptcy expenses. Sears assets will go up for auction on 14 January when Lampert’s offer will be compared with that of the liquidators. Liquidation would lead to the closure of hundreds of stores and the potential loss of 68,000 jobs. Many former workers have had their severance packages stopped even as Sears executives have petitioned to receive up to $25m in bonuses.
At a bankruptcy hearing on Tuesday in New York, lawyers for Lampert and his hedge fund, ESL Investments, made their case that, as Sears’ biggest creditor and largest shareholder, it should be forgiven $1.3bn of debt in exchange for ownership of the reconstituted company.
However, advisers for the firm claimed the offer was insufficient.
The hearing could mark the end of a decade-long adventure for Lampert, considered one of Wall Street’s most aggressive financiers. Once touted as the new Warren Buffet, his background as a hedge funder did not translate to retail. Lampert’s attempt to turn around the company, which included merging Sears with the discount chain Kmart, resulted in further revenue declines, hundreds of store closures and claims of poor management.
Lampert bet that a strong loyalty programme would help Sears prevail against competition from retail giants like Walmart and Amazon. But unlike Walmart, which has invested heavily in retail technology, Sears and Kmart could not compete with Amazon online or with the discounting that Walmart’s scale allowed.
Sears’ last profitable year was in 2010 and sales have dropped by half over the same time period.
The loss of Sears will be a symbolic blow to the US retail landscape. Founded in 1893, it was once the nation’s largest retailer. It was known as the “first everything store”, selling everything from toys to medicine, gramophones, automobiles, kit houses and headstones.
But with about 425 remaining Sears and Kmart stores, Lampert’s plan to restore Sears to the era when it owned the tallest building in the world, in Chicago, as well as a radio station and the Allstate insurance group, never came close to being realized.
Lampert initially won the confidence of investors after he turned around the car parts store Autozone. But as US consumers’ shopping habits changed, and America’s shopping malls lost their appeal, department stores suffered heavy losses.
In 1985, chains like Sears, Macy’s and Lord & Taylor accounted for 14.5% of all North American retail purchases. By last year, that had dropped to 4.3%.
Critics of Lampert’s management said he had let the stores deteriorate, with outdated fixtures, dark lighting and piles of unwanted clothes, even as he bought the company’s stock and lent it money.
Mall owners, too, fell out of love with Lampert’s vision and complained that the poor selection of goods and store layout harmed the overall appeal of the mall itself.
In court papers, mall owners Simon Property Group and Brixmor Property Group said Sears’ plan to keep stores open rather than pursue going-out-of-business sales was “an unjustified and foolhardy gamble with other people’s money”.
In court filings, ESL Investments rebutted that charge by saying Simon and Brixmor “have a vested interest in seeing Sears liquidate without regard to the interests of Sears’ other stakeholders”.
