Quantcast

Why Sears Holdings Stock Was Rallying Thursday


What happened

Shares of Sears Holdings (NASDAQ: SHLD) were surging this morning after an investor sent an open letter to the retailer's board, calling for the company to go private and for an investigation into recent short-selling . As a result, Sears shares were up 8% as of 11:16 a.m. EST.

The exterior of a Sears store

Image source: Sears.

So what

Memento, a value-investing group owned by the Swiss-based Spadone family with 2 million shares in Sears, sent the letter this morning, arguing that excessive short interest has restricted the stock's float, making it difficult to buy shares, which it believes has been a primary cause of the stock's volatility over the last two years and has pressured the stock lower.

It asked the board to investigate the short-selling activity, called for a temporary halt in short sales, and also said the company should evaluate strategic alternatives, including going private.

Now what

The idea of going private seems to be the biggest boon for Sears' shareholders -- CEO Eddie Lampert, who is already the company's largest shareholder and has his own hedge fund, ESL Investments, could take the company private if he wanted to, especially now that Sears' market cap is less than $500 million. Instead, Lampert seems to be positioning himself to capitalize on Sears' assets in a bankruptcy by making loans to the company and spinning off 241 stores into Seritage Growth Properties (NYSE: SRG) , a Real Estate Investment Trust.

Going private would alleviate many of Sears' problems, including Lampert's war with the media, damage to the company's reputation from its publicly reported losses, and the rampant short-selling. It would also improve the company's image and likely gain it credibility with suppliers who have been abandoning it as Lampert, or another buyer, would be putting his full faith behind the company.

Sears has not yet responded to the letter. While Memento's argument doesn't help the underlying business, the notion of the company going private should put a floor on the stock for the time being.

10 stocks we like better than Sears Holdings
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sears Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of December 4, 2017

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: SHLD , SRG


More from Motley Fool

Subscribe






Motley Fool
Contributor:

Motley Fool

Market News, Investing








Research Brokers before you trade

Want to trade FX?





Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com