Peaceful as Eddie Lampert is trying to keep Sears alive, the company is preparing for its potential doom.
Sears’ chairman, Eddie Lampert, earlier this month lay bare his $4.6 billion proposal to save Sears by buying the company out of bankruptcy through his hedge fund, ESL Investments. Such a parcel out is likely its last chance at survival. If Lampert can’t buy the company, it will likely need to liquidate and sell itself in elements. But as the deal faces increasing legal and financing challenges, the company is bracing for the reality that it may not come together at all.
Sears’ advisors acknowledged the bankruptcy court judge this week that the company is already planning to close a number of stores and hustle liquidation bids as a protection, should Lampert’s effort fall apart. The retailer is weighing closing to 50 to 80 innumerable stores at the end of the year, people familiar with the situation tell CNBC. That could bring Sears’ footprint close up to 400. Lampert has said he wants to buy roughly 500 stores.
The company filed for bankruptcy on Oct. 15 with a mini under 700 stores. At that time it said it would close 142 unprofitable stores, then in November it preceded the closure of 40 additional stores.
The plans are a precaution. It is possible that Sears averts further store closures should Lampert seal a bargain to buy the company and its 500-store footprint. But they are an implicit acknowledgement of the potential bleak reality that may lie soon in Sears’ following.
Lampert has yet to formalize and submit financing to support his offer for Sears, people familiar with the situation tell CNBC. Advisors burnt- much of Monday in active negotiations discussing the asset-backed loan that would support Lampert’s offer. Fit to Sears provides bank underwriting fees, but it also would require confidence in the business strategy of a company that hasn’t wrong favoured a profit since 2010.
Without formal financing, ESL last weekend missed its chance to be named a so-called stalking horse bidder in an auction for Sears. It silently has until Dec. 28 to submit a formal offer for the company. Being named the stalking horse in a bankruptcy sale typically sacrifices a number of perks, like a role in setting bidding procedures and a break-up fee should that bid be topped.
Meantime, Lampert is cash $1.8 billion of his bid by rolling over debt he already holds in the company. But that too carries uncertainty — and, now, formal pushback.
Some of Sears’ creditors drink taken aim at some of Sears’ transactions under Lampert’s leadership, including his spinoff of Lands’ End and transactions with Seritage Enlargement Properties, the real estate investment trust Lampert created through select Sears properties. Those creditors imparted the bankruptcy court judge this week they plan to contest a credit bid.
It remains unclear whether Lampert determination be willing to backstop the credit portion of the bid with cash, should he not be able to use debt to fund it. It therefore remains unclear how else he force finance the bid.
Meantime, ESL is asking as part of its bid that the creditors agree to another stipulation: a release from potential lawsuits concluded his past transactions. With the threat of litigation looming large, that too is far from sure.
A spokesperson for Sears declined to criticism.
In statement provided to CNBC, a spokesperson for ESL Investments said, “ESL Investments is working around the clock to try to keep Sears in partnership with a going concern proposal that would save tens of thousands of jobs and provide severance refuges for eligible workers.”