Lampert’s Hedge Fund Eyeing Sears Assets

Sears Holdings Corp. and its board of directors have received a letter from ESL Investments expressing the view that the company should pursue a divestiture of all or a portion of its Kenmore brand and related assets, the Sears Home Improvement business of the Sears Home Services division (SHIP) and the PartsDirect business of the Sears Home Services division.

Edward Lampert, Sears chairman and CEO, is chairman and CEO of ESL Investments, which is, through its funds, the largest shareholder of Sears Holdings and a lender to the retailer.

The letter states that if Sears Holdings decides to pursue a divesture of any of Kenmore, SHIP, or PartsDirect business, ESL would be interested in participating as a buyer. It asserts that Kenmore, SHIP, and PartsDirect have substantial value and that divesting one or more of those businesses would enable Sears Holdings to improve its debt profile and liquidity position.

According to Sears, the letter includes:

  • ESL’s non-binding proposal to acquire SHIP and PartsDirect based on an enterprise value of $500 million.
  • ESL’s willingness to submit a proposal for the acquisition of Kenmore.
  • ESL’s bid for certain real estate owned by the company including the assumption of designated debt obligations secured by that real estate with the expectation of entering into an ongoing master lease for some or all of the stores that allows for their continued operation.

The letter emphasizes that ESL’s principal interest is in Kenmore, SHIP, and PartsDirect divestiture in the near term at a full and fair value, regardless of whether ESL or a third party is the ultimate buyer.

To ensure a fair process, ESL indicated that it would not participate in any transaction as a buyer unless such transaction is both recommended by a committee of independent Sears Holdings directors that is fully empowered to consider such a transaction and approved by the holders of a majority of the shares of common stock of the company held by disinterested stockholders. Also, the letter stated, Edward Lampert and Kunal Kamlani, a Sears Holdings director and president of ESL, would not participate on the retailer’s behalf as officer or director in any discussions, deliberations, negotiations or decisions with respect to a potential transaction in which ESL participates as a buyer, except to the extent specifically requested by that committee. In addition, the letter continues, Sears Holdings would set any transaction in which ESL participates as a buyer as subject to a go-shop process on reasonable terms.