Edward Lampert’s ESL Investments has made a $400 million bid for Sears Holdings’ Kenmore business.
Lampert is chairman and CEO of Sears Holdings as well as ESL. Sears established a special committee of its board to consider an April proposal from ESL, which holds a major stake in the company, one that included divestiture of the Kenmore business as well as the Home Improvement business of the Sears Home Services division and the Parts Direct business of the Sears Home Services division.
In an August 14 letter to the Sears board, ESL reiterated its position on the Kenmore divesture, stating, in part:
“We are writing to submit a non-binding proposal to acquire Kenmore and SHIP and to update the special committee regarding our plans with respect to Parts Direct and certain other transactions, as well as to re-emphasize our firm belief that these transactions should be undertaken together with tender and exchange offers designed to allow Sears to reduce its debt, extend its maturity profile and alleviate its liquidity challenges. Together, we believe these transactions would contribute to a comprehensive solution to create a viable and healthy Sears and would provide greater value to all stakeholders than would be available in pursuing other alternatives.”
“ESL proposes to pursue a cash acquisition of Kenmore based on a cash-free, debt-free enterprise value of $400 million, subject to adjustment in respect of the working capital assets and liabilities of the business at closing. The transaction would be on terms and subject to conditions consistent with those contained in the draft Kenmore asset purchase agreement provided by our counsel to the special committee and its advisors. With the special committee’s consent, ESL has been discussing with potential partners their participation in the acquisition of Kenmore. As provided in the Kenmore APA, the transaction would be conditioned on our receipt of equity financing from a potential partner on terms acceptable to ESL. We are confident that we will be able to secure such financing. In a separate intiative, ESL proposed to pursue a cash acquisition of SHIP based on a cash-free, debt-free enterprise value of $70 million, subject to designated and potential adjustments.”
The letter further noted:
“We are prepared to move as quickly as possible to complete our due diligence for transactions involving Kenmore and SHIP and to enter into definitive agreements related thereto as early as August 24, 2018. We believe it is possible to finalize the Kenmore APA and SHIP APA, and commence the “go shop” process that they contemplate, in a timeframe that permits us to close on these acquisitions within 60 to 90 days.”
“Additionally, ESL is planning to engage with potential third party investors to solicit interest in a transaction involving all or portions of Sears’ encumbered real estate (including the assumption of the debt obligations secured by such real estate), with the expectation that such transaction would include an ongoing master lease for some or all of the stores to allow for their continued operation. We believe such a transaction could accelerate, and provide Sears with greater certainty than, its existing real estate divestiture efforts.
“We further encourage Sears to engage with its existing debt holders to gather information about their objectives and expectations to help develop a view of how tender or exchange offers for certain series of Sears’ existing debt could be constructed. As a significant holder of Sears’ debt, ESL is prepared to participate in certain such transactions if they would result in a substantial reduction of Sears’ overall leverage.”