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There's been a lot of speculation about how Sears Holding Corp (NASDAQ: SHLD ) might survive going forward, even as an apparent slow-motion bankruptcy seems to be in the cards.
However, last week CEO Eddie Lampert and his ESL Investments, offered to buy up some of the company's major assets. I suggested this might happen several months ago, and I believe this is the beginning of his endgame.
With ownership of roughly 55% of SHLD stock and holding a large amount of its debt, many people were puzzled as to why Lampert kept shoveling money into the failing retailer.
I suggested that the Kenmore, Craftsman and die-hard names were valuable assets. I also pointed out that SHLD includes both an insurance subsidiary and a reinsurance subsidiary, not to mention a Canadian subsidiary and consumer credit operation. My holistic thought was that Lampert was trying to reposition Sears, rather than prevent bankruptcy.
Instead, he may very well have been throwing money at the company as a way of taking control of its best assets, and offering to buy them out (although Craftsman was sold to Stanley Black & Decker, Inc. (NYSE: SWK )).
ESL wrote to the board last week saying, "We continue to see value in Sears and its underlying assets and believe strongly that with an appropriate runway Sears will be able to complete its transformation to respond to the challenging retail environment."
ESL expressed interest in the Kenmore brand and valued the home improvement and parts direct business at $500 million. It also said it would pay for the latter in badly needed cash.
In addition, as I also wrote last year, there is value in SHLD real estate. ESL said it would consider making an offer for the real estate which would also include taking on its $1.2 billion in debt. SHLD would engage in a sale - a leaseback transaction allowing it to continue to operate stores.
That's a great deal for Lampert. Right now he only partially holds the real estate. Why not just completely buy it out and have the chain generate rent revenue on his behalf?
"In our view, pursuing these divestitures … will provide an important source of liquidity to Sears and could avoid any deterioration in the value of such assets," ESL said.
Yeah, I should think so. This is exactly what Lampert has been planning all along. At least, in my opinion, that's been his grand plan. The struggling retailer could not have survived this long without him having infused the company with liquidity.
As it is, between him personally and his hedge fund owning the majority of the company, the board can scream and yell all it wants, but ultimately, he can get his hands on those assets. It's just a question of how difficult the board wants to make it for him. Let's not make any mistake, either. Certainly the board must've known that this was the plan all along.
In other words, Lampert slowly built his position in the company to the point where he could effectively control it. Now he's going to gut it of all its assets, while providing important and necessary liquidity for the company itself to stay out of bankruptcy - for now, anyway.
If SHLD survives, Lampert wins big. If SHLD stock goes to zero, he gets its prized assets.
Bottom Line for SHLD Stock
What does all this mean for SHLD stock owners? There is no way I would hold the stock over the long term. At best it's a speculative long, but I see the chain continuing to struggle going forward.
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Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com . He does not own any stock mentioned. He has 23 years' experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.Compare Brokers
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