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Contents


Lampert steps down as Sears chairman
February 16, 2019

Lampert completes acquisition of Sears; chain to conduct CEO search
February 12, 2019

J.C. Penney to drop major appliances after a 3-year run
February 10, 2019

Sears Just Avoided Liquidation - But Workers Have a List of Demands
February 8, 2019

Sears will stay in business; Bankruptcy Court approves Chairman Edward Lampert's plan to buy struggling retailer
February 7, 2019

Sears shares surge as bankruptcy judge OKs Lampert bid
February 7, 2019

Sears Chairman Eddie Lampert could save the brand - or doom it
February 6, 2019

Sen. Warren decries Lampert's bid to own Sears
February 1, 2019

Big Sears creditor objects to Lampert's bid
January 28, 2019

Sears Creditors Challenge Retailer's Sale to Lampert
January 25, 2019

PBGC to Pay Pension Benefits for Employees and Retirees at Sears and Kmart
January 18, 2019

Sears Holdings: You Missed The Big Short, Don't Miss The Big Long
January 17, 2019

Here's What Eddie Lampert Should Do With Sears Now
January 17, 2019

Lampert wins bid to keep Sears alive
January 16, 2019

Sears survives, what now?
January 16, 2019

Hoffman Estates on Sears' possible collapse: 'Village has survived tougher challenges'
January 9, 2019

Lampert readies higher bid to save Sears
January 9, 2019

Sears Not Liquidating Yet As Court Gives Lampert More Time For His Bid
January 9, 2019

Eddie Lampert May Have Kept Himself From Winning Sears Bid
January 8, 2019

Sears to ask bankruptcy judge for approval to liquidate: sources
January 8, 2019

Sears gets last-minute reprieve
January 8, 2019

Sears preps for possible liquidation
January 7, 2019

Sears Prepares for Possible Liquidation as ESL Bid Fails
January 6, 2019

Survival of Sears hangs by thread as bid ruling said to be delayed
January 6, 2019

Sears judgment day arrives for Lampert's last-ditch rescue
January 4, 2019

Sears believes Eddie Lampert's bid to save the company is short. Without a deal, company could liquidate
January 4, 2019

REITs with Sears exposure jump as ESL puts forth alternative proposal
January 2, 2019


 

Breaking News

2018

Lampert steps down as Sears chairman
By NARSE News
February 16, 2019

Eddie Lampert is stepping down as chairman of Sears' board, according to a company filing. The filing states:

"On February 12, 2019, Edward S. Lampert, Chairman of the Board of Directors of the Company (the 'Board'), and Kunal S. Kamlani, a director on the Board, each notified the Company of his decision to step down from the Board, effective immediately. Their resignations relate to the completion of the Going Concern Transaction and are not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices. Mr. Lampert is Chairman of the board of directors, and Mr. Kamlani is President, of ESL."

Lampert, whose hedge fund won a $5.2B auction for the retailer last month, already stepped down as CEO when Sears filed for bankruptcy last year

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Lampert completes acquisition of Sears; chain to conduct CEO search
By Marianne Wilson
Chain Store Age
February 12, 2019

It's official: ESL Investments, the hedge fund run by Sears Holdings Corp. chairman Eddie Lampert, has completed its acquisition of the bankrupt company for approximately $5.2 billion.

Last week, a bankruptcy court judge approved ESL's offer, clearing the way for Sears to exit bankruptcy and remain in business as a going concern. Following its ongoing (and previously announced) round of store closures, the new Sears will be made up of 223 Sears and 202 Kmart stores, along with such brands and operating businesses as Kenmore, DieHard, Craftsman, Sears Home Services, Sears Auto Centers and Innovel.

The company will be led by the same management team that constituted the "Office of the Chief Executive" of Sears Holdings, consisting of Robert A. Riecker, CFO; Leena Munjal, chief digital officer; and Greg Ladley, president, softlines. (The office was put in place when Lampert stepped down as CEO.). Sears said it intends to conduct a search for a CEO with a record of success "in managing platform businesses and effectuating large-scale dynamic transformations."

"The best possible outcome has now been realized for all stakeholders, including Sears' many associates, Shop Your Way members, vendors and other partners," Lampert, CEO of ESL., said in a statement. "ESL looks forward to a new era at Sears and Kmart that builds on their proud histories, while finding new ways to innovate and grow to adapt to the forces transforming the retail industry. We are ready for this exciting opportunity to help return Sears to profitability and will apply ourselves every day in pursuit of that goal."

A new entity, Transform Holdco, will be the holding company for the rescued chain and keep all existing customer experience and agreements intact for a "seamless transition," the statement said. As of the closing of the acquisition, the new Sears had more than $400 million in excess availability on its new asset-backed credit facility, which provides a significant runway to pay assumed liabilities and execute go-forward initiatives, including investments in new, smaller stores to expand its reach in the hardlines category.

In a statement, the company moves forward from the Chapter 11 process positioned for success with:

   • A footprint of profitable retail stores, a robust digital platform and an integrated ecosystem of businesses that drive franchise value;
   • A healthier capital structure, including a reduced debt load, that creates the liquidity necessary to invest in its go-forward plan;
   • Initiatives to drive margin & EBITDA growth, including technology investments, inventory optimization and Sears Home Services enhancements;
   • Significantly reduced SG&A expense;
   • Strong brand recognition and market positions in key segments, appliances;
   • No. 3 appliance retailer in the U.S.;
   • No. 1 home service and direct delivery provider, including for leading third-party retailers; and
   • No. 1 provider of appliance and lawn & garden parts for the DIY community.

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J.C. Penney to drop major appliances after a 3-year run
By Anne D'Innocenzio
Chicago Sun-Times
February 10, 2019

J.C. Penney will no longer be selling major appliances, ending its three-year run.

The Plano, Texas-based department store chain also says on its company blog that furniture will only be available on its website and store locations in Puerto Rico.

The move marks the first major initiative by the company's new CEO Jill Soltau to try to turn around J.C. Penney's business. The company has been trying to claw its way back after a disastrous reinvention plan in 2012 by its former CEO Ron Johnson, who dramatically cut back on temporary promotions and brought in new brands to attract young shoppers. Since then, the retailer's business has stabilized but is still weak as it struggles to figure out its identity.

Major appliances will be discontinued as of Feb. 28. J.C. Penney says it wants to go back to focusing on its heritage of fashion and home furnishings, which carry higher profit margins. The company says it's completing a new store layout, including the reduction of space previously dedicated to appliance and furniture showrooms.

Under former CEO Marvin Ellison, J.C. Penney returned to selling major appliances after 33 years to decrease its reliance on fashion and respond to shifting consumer habits. It also was hoping to capitalize on the woes of Sears, which had ceded market share in this category to new players like Home Depot and Best Buy. Sears filed Chapter 11 bankruptcy last October and its fate is uncertain.

Appliances, however, are not a big traffic driver since shoppers buy them every few years.

Penney is set to report its fiscal fourth-quarter earnings results on Feb. 28.

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Sears Just Avoided Liquidation - But Workers Have a List of Demands
By Jennifer Calfas
Money
February 8, 2019

It's a bittersweet feeling for Sears and Kmart employees as the billionaire who oversaw the shuttering of hundreds of stores and elimination of hundreds and thousands of jobs now ushers the storied retailer into a new era.

Current and former employees who spoke with MONEY throughout Sears' Chapter 11 bankruptcy proceedings say they worry about what the future of the company would look like under Sears Chairman Eddie Lampert's ownership.

And now, those concerns have become reality.

This week, a U.S. Bankruptcy Court judge officially approved Lampert's $5.2 billion bid to save 425 Sears and Kmart stores and roughly 45,000 jobs from liquidation. Lampert's bid, which he made through his hedge fund ESL Investments Inc., was the only one that would have kept Sears alive and was met with staunch opposition from Sears' unsecured creditors, who called Lampert's plan a "scheme to rob Sears and its creditors of assets."

As CEO and Chairman, Lampert's reign at Sears led to cost-cutting efforts that resulted in a decline in sales, store closures, and inventory reductions. Current and former employees say they saw their hours shortened, benefits lessened, and wages stifled in the process. During bankruptcy proceedings, creditors and employees accused Lampert of profiting off of the company’s demise.

(Representatives from ESL and Sears Holdings did not respond immediately to requests for comment.)

Since the company filed for bankruptcy in October 2018, current and former employees say their jobs were "tossed around like a volleyball by Eddie Lampert," as they wrote in a letter to the court earlier this week. In 2018 alone, more than 10,016 employees were laid off as a result of hundreds of store closures, according to Challenger, Gray & Christmas, a Chicago-based career transitioning firm. More than 4,880 of those jobs were eliminated when the company filed for bankruptcy, and dozens of stores are still slated to close come March.

"I've already been working with him as a CEO, and I didn't see any improvement since he got there," says Victor Urquidez, an assistant manager at a Sears Auto Center in California who also co-wrote the letter. "I think there won't be any difference. We won't be expecting any changes."

With Lampert's bid the only viable option to keep Sears alive, employees say they felt stuck and powerless through bankruptcy proceedings: Would they rather lose their jobs and the company they devoted their careers to entirely, or continue to work for the man they believe drove the company into the ground?

With the latter as their new reality, employees say they won't stand idly by. They want accountability from management - and here's how they're hoping to get it.

Severance pay for laid-off workers

In a letter to the bankruptcy court judge this week, employees said Lampert should meet with them "to listen to our ideas and concerns."

One of the biggest concerns for workers in the last several months has been securing severance pay. A number of laid-off retail employees told MONEY these last several months that they stopped receiving or never received severance pay as a result of bankruptcy proceedings.

As part of Lampert's approved bid, he included a $40 million severance pay fund that would cover "certain severance costs incurred by Sears during bankruptcy and reinstate severance benefits for eligible employees in a new company," according to his hedge fund.

Terry Leiker, a laid-off Sears employee who worked there for 17 years, never received her severance pay after her job ended the day before the company filed for bankruptcy. Now, she's struggling to find a new job and collecting unemployment checks.

"We're owed that money," Leiker says. "We're the ones that made Eddie the millions that he has. We deserve it. We worked hard for it."

Workers are also asking for an additional financial hardship fund to be created to help ease the transition for laid-off employees as they seek their next job. As for the severance pay fund that Lampert already guaranteed, it's unclear when that money will be doled out now that Lampert's bid has been officially approved.

Employee representation on the corporate board

To ensure their voices are heard, employees say they should have a seat on the board.

That position would "ensure the survival and viability of the company is prioritized over short-term benefits for (Lampert) and other shareholders," says Rise Up Retail, a labor group that has worked with Sears and Kmart employees throughout bankruptcy proceedings.

Worker representation on corporate boards is not a new idea - but is one seldom adopted in the United States. Senators like Tammy Baldwin and Elizabeth Warren have proposed requirements along these lines in recent months, and the concept is fairly popular among Democratic voters, according to Civis Analytics.

But, it's not exactly clear what employee board representation would look like. Germany is seen as the model for these efforts, and workers there don't have representation on the corporate board of directors. Instead, they are represented on a supervisory board, according to Harvard Business Review.

Separate the positions of CEO and Chairperson

Lampert served as chairman and CEO of Sears from 2013 to late 2018, when he stepped down from the CEO position when bankruptcy proceedings began. Separating these positions, workers say, would lead to greater accountability.

Gabe McGuire, a Kmart employee whose store in North Carolina is set to close in March, says Lampert's position in both of these roles previously presented several conflicts of interest. "It's kind of like he's monitoring himself," McGuire says. "I don't see how that isn't a conflict of interest."

More companies are moving toward separating these two positions, according to a 2016 paper published by the Rock Center for Corporate Governance at Stanford University. Just over half of S&P 500 Index companies were led by individuals who carried both the CEO and chairperson titles, the paper says. Fifteen years prior, 77% of these companies had that type of leadership.

The paper does note, however, that there is "little evidence that chairman/CEO duality is on average detrimental to future performance or governance quality."

Employees, however, believe that at Sears, the separation could help them achieve their larger goal in this new era: accountability.

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Sears will stay in business; Bankruptcy Court approves Chairman Edward Lampert's plan to buy struggling retailer
By Alexia Elejalde-Ruiz
Chicago Tribune
February 7, 2019

A plan to keep Sears Holdings Corp. alive and tens of thousands of people employed was approved Thursday by a federal Bankruptcy Court judge.

Judge Robert Drain of U.S. Bankruptcy Court for the Southern District of New York approved Sears Chairman and former CEO Edward Lampert's bid to buy the retail chain's assets for $5.2 billion.

Lampert's purchase, made through his hedge fund, ESL Investments, is intended to keep 425 Sears and Kmart stores open, preserving some 45,000 jobs. It was the only plan submitted that would have kept the once-mighty department store giant in business and avoid liquidation.

Lampert's plan was opposed by a committee of unsecured creditors skeptical that Hoffman Estates-based Sears will be any more successful after exiting bankruptcy. The committee pushed for a liquidation, arguing that shutting down the company and selling its assets could recover more of what Sears owes.

Still unresolved is a dispute between Sears and ESL over which is responsible for paying $166 million for inventory received after Sears filed for Chapter 11 bankruptcy on Oct. 15. Although Drain did not have jurisdiction to decide the issue, he gave an advisory opinion in favor of Sears' claim that ESL is responsible for those liabilities.

"I am more than reasonably confident that that would be the result in a contested manner brought before the court," Drain said.

Drain's approval of Lampert's bid came the same day that Sears' largest unsecured creditor, Pension Benefit Guaranty Corp., withdrew its objection after reaching an agreement over $1.7 billion it said it was owed.

The federal agency, which guarantees individuals' pension plans if an insured plan shuts down without enough money to cover benefits, reduced its claim to $800 million, Sears attorney Ray Schrock told the judge Thursday.

The agreement clears the way for the insurer to assume responsibility for Sears' two pension plans, the agency said in a statement. The agency said last month that it would seek to take over Sears' plans, which cover more than 90,000 people.

The judge's decision saves Sears from liquidation, but still unanswered is whether Lampert will reinvigorate a retail chain with which many consumers have fond memories, but no current relationship. Lampert has said he wants to invest smaller stores and those that are profitable, with a focus on popular categories like appliances and repair services.

As of October, the company had 687 Sears and Kmart stores, down from 1,672 stores in January 2016. Another 262 stores have closed or are expected to close by March.

ESL has said the new company would be able to make more investments in new initiatives and get better terms with vendors after shedding debt and pension obligations. In his bid, Lampert said he would cut overhead expenses in half.

Despite the plan's approval, "major hurdles to its long term business remain," Moody's department store analyst Christina Boni said in a statement.

"Scale, which is a critical to competing in retail today, will be lacking and its core customer proposition still remains in question," she said. "Further shrinking of the store base and cost reductions may be required as profitability remains elusive."

Sears Holdings has lost more than $11 billion since 2011. Lampert, who stepped down as CEO when the company filed for bankruptcy protection, has been trying to right the ship at Sears for years amid tough competition from rivals like Amazon, Walmart and Target.

Lampert engineered Kmart's $11 billion acquisition of Sears in 2005 and, through his hedge fund, is the company's largest shareholder. He has said he's provided Sears with more than $2.4 billion in loans and other forms of financing over the last several years.

ESL plans to finance a portion of its purchase by trading $1.3 billion in Sears debt it holds for ownership in the reorganized company. The court clarified this week that the bid does not require the company to release Lampert and ESL from liability related to transactions between the hedge fund and the retailer prior to the bankruptcy filing.

ESL, in its business plan for the new Sears, said the new company would be able to make more investments in new initiatives and get better terms with vendors after shedding debt and pension obligations.

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Sears shares surge as bankruptcy judge OKs Lampert bid
By Wallace Witkowski
MarketWatch
February 7, 2019

Sears Holdings Corp. shares rallied Thursday as a bankruptcy judge approved Edward Lampert's bid to purchase the ailing retailer for $5.2 billion. Sears shares surged 32% to close at 76 cents. Judge Robert Drain said he would approve Lampert's purchase, allowing Sears to keep 425 stores open, preserving about 45,000 jobs, according to a Dow Jones report.

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Sears Chairman Eddie Lampert could save the brand - or doom it
By Martha C. White
NBC News
February 6, 2019

Some retail experts said Lampert's moves over the years were intended to extract value for himself at the expense of other stakeholders.

A diverse group of players is engaged in a tug-of-war for the beleaguered Sears brand. Analysts are skeptical that the retail icon can stage a rebound, even if its board and controversial chairman manages to stave off liquidation this week. The chance for long-term viability, they say, might already be in the rear-view mirror.

In a bankruptcy court hearing this week, Sears chairman Eddie Lampert is fighting to get the bid of approximately $5.2 billion he made for the company last month to be approved. Supporters, including Sears' board, say the move would save the jobs of 45,000 workers. In exchange, Sears would sell its assets to Lampert's ESL Investments hedge fund, including the remaining 425 stores.

The department store's unsecured creditors have pushed back on the plan, arguing that they would be better able to recoup some of their losses if the company is liquidated now - before any more value is transferred to Lampert or entities controlled by him. Those creditors have labeled the $5.2 billion lifeline as "nothing but the final fulfillment of a years-long scheme to deprive Sears and its creditors of assets and its employees of jobs while lining Lampert's and ESL's own pockets."

An additional wrinkle is Sears' underfunded retirement plan, which covers roughly 90,000 former workers and is backstopped by the federal Pension Benefit Guaranty Corp., to which Sears gave some intellectual property rights to the Kenmore and DieHard brands as collateral. Under Lampert's proposed rescue plan, which the PBGC also is fighting in court, ESL would gain control of those brands, potentially undercutting any claim the agency might have on them.

Lampert has a long, and rocky, history with the retailer. In 2005, he spearheaded a merger of Sears and Kmart. At the time, the two brands combined had approximately 3,500 stores and were expected to generate $55 billion in annual sales. Lampert is Sears Holding Corporation's chairman as well as former CEO and largest shareholder. At the time of its bankruptcy filing, Lampert and ESL also were the company's largest creditor.

Retail analysts tend to agree that Lampert is the only one with the means - or the desire - to save the storied brand in the short term, but suggest he oversold his ability to turn around the struggling retailer. "Lampert's always been the savior of Sears in his own eyes... [He] is really the one responsible for Sears' demise," said Neil Saunders, managing director of GlobalData Retail.

Saunders said Lampert's strategy was flawed from the start. "Really, the start of the serious problems was the merger with Kmart," he said. "Two under-performing companies were put together on the idea that there could be economies of scale... That never proves to be the case."

Analysts blame Lampert for compounding the problem by under-investing in Sears while aggressively pursuing cost cuts that limited its ability to be competitive. "In our view the company will continue to be hobbled by the same untenable problems," Moody's Investors Service Vice President Christina Boni wrote in a recent research note.

Even if the bankruptcy court agrees to Lampert's $5.2 billion deal - which Lampert acknowledged could see the closure of hundreds more stores - shrinking the way back to profitability is an exercise in futility, Boni said, given the squeeze from Amazon and other online as well as brick-and-mortar competitors.

"Today in retail you'll see that scale definitely matters," Boni said. "We're seeing that larger retailers are having a better time making and leveraging those investments."

Other analysts and retail experts also expressed skepticism that any leadership team helmed by Lampert could accomplish a last-ditch turnaround. Even Democratic presidential hopeful for 2020 Elizabeth Warren weighed in: The Massachusetts senator accused Lampert in a letter last week of enriching himself at the expense of workers. Sears, she wrote, "appears to be suffering from a unique set of problems as a result of your leadership."

Warren acknowledges that Lampert's proposal would save jobs in the immediate future, but cast doubt on his willingness or ability to stabilize the company in the long term.

"I am concerned that under your leadership, Sears may continue to struggle and employees will continue to face uncertainty and anxiety over their future employment, and ongoing risks to their benefits and economic security," she wrote.

"There are business ethics questions on both sides of that debate," said Greg Portell, lead partner in the global consumer and retail practice at consulting firm A.T. Kearney. Abandoning the pension fund could give the retailer a fresh start that might keep employees at their jobs, but at the expense of retirees. If the deal falls through, creditors and retirees will stand a better chance of cutting their losses, but workers will be out of luck.

Some experts suggested that financial maneuvers over the years - cutting costs, closing stores, selling real estate holdings to a trust controlled by Lampert, spinning off brand assets like Lands' End and Craftsman - were intended by design to extract value on behalf of Lampert's various business interests and at the expense of other stakeholders.

Theresa Williams, clinical associate professor of marketing at Indiana University's Kelley School of Business, pointed to the brand's recent history and previous promises of a turnaround that never materialized. "We just came off the best retail year we’ve had in eight years and there was zero evidence that they made any headway," she said.

"This latest effort is no different than any of the other strategies Lampert has employed since the beginning. It's been a money grab from the start," Williams said. "[He] leveraged every single asset to the max to his financial benefit or to ESL's benefit."

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Sen. Warren decries Lampert's bid to own Sears
By Lauren Coleman-Lochner and Eliza Ronalds-Hannon
Bloomberg
February 1, 2019

Senator Elizabeth Warren, a possible Democratic presidential candidate, slammed Lampert in a letter dated Wednesday, citing the "inherent conflicts of interest" in the hedge fund manager's takeover of bankrupt Sears Holdings Corp.

Warren calling out a billionaire isn't necessarily surprising -- she's proposed a tax on the super-wealthy and describes herself as a champion of America's middle class. What's unusual is that Lampert made saving thousands of jobs a centerpiece of his winning bid for parts of the 126-year-old retail icon.

In the letter to Lampert, who ran the company until last year and remains its chairman, Warren questioned his "commitment to the company's employees given your history of slashing jobs."

Sears "appears to be suffering from a unique set of problems as a result of your leadership -- and now it appears that the same company you brought to the brink of liquidation could be back in your control without any substantial changes in leadership or governance," Warren wrote. She added: "It appears that you have enriched yourself while driving the company into bankruptcy."

Economic Inequality

Warren's salvo is another sign that Democratic lawmakers are serious about making economic inequality a political issue ahead of the 2020 presidential election. A special concern for Warren, a former Harvard Law School professor, and others is the treatment of workers in bankruptcy, where U.S. law focuses on reimbursements to bondholders while people rendered jobless by a company’s collapse are left to fend for themselves.

Lampert's hedge fund, ESL Investments Inc., said in a statement that it's reviewing the letter.

Growing Concern

"Our going-concern bid for the assets of Sears Holdings in a transparent, court-supervised auction reflects our belief in the potential to create a successful company that can benefit from the changes in today's retail environment," ESL said in the statement. "It offers Sears the only long-term opportunity to save and create jobs, honor the extended warranties that were purchased by so many customers, generate new value and grow."

Sears paid almost $5 billion into worker pension plans during Lampert's tenure and ESL was "a constant source of funding" for the retailer, lending $2.4 billion, the hedge fund said. As for the allegations of conflict of interest, also leveled by a creditors' committee, ESL said they are "misleading or wrong" and vowed to address them in court.

The liquidation of Toys "R" Us Inc. looms over bankrupt Sears. The toy-store chain's employees were able to negotiate a $20 million hardship fund for themselves with the company's private equity owners. To help consummate the deal, they paid an August visit to Capitol Hill, where they met with presidential hopefuls Kirsten Gillibrand and Cory Booker. In their purple and blue company T-shirts, the workers pleaded for limits on leverage in private equity buyouts and protections like profit clawbacks that could generate money to help other laid-off workers. Warren called for lenders to contribute to the hardship fund.

Toys 'R' Us Workers Go to Congress to Seek Curbs on Buyout Firms

The publicity, and the workers' success, created tension in the Sears bankruptcy case. Bankers worried they'd be blamed for firings if they didn't support Lampert's bid for Sears. Judge Robert Drain told stakeholders that "it would be a very good thing" if the company could preserve most of the remaining jobs.

Staying Alive

Lampert and his hedge fund moved to keep Sears alive earlier this month by buying it out of bankruptcy and giving it a new corporate parent. His $5.2 billion proposal cleared one hurdle Jan. 16, and will likely be formally green-lit in court on Monday.

All this despite protests from Sears creditors, including some landlords, vendors and the U.S. agency overseeing its pension fund. An official creditor group has objected to the bid. They say Lampert has pillaged Sears for more than a decade, and have threatened to sue him over controversial past transactions.

Warren raised similar concerns in her letter.

"The inherent conflicts of interest and the decisions you made while running the company have short-changed Sears workers, leaving a company with a long, proud history in American retail on its last legs," she wrote.

Meanwhile, about three dozen former and current employees of Sears and its corporate sibling, Kmart, marched up Seventh Avenue in Manhattan Thursday to a Kmart store, where they outnumbered the shoppers. They chanted, "Beat back the Wall Street attack," and said they wanted more protective laws for workers.

Midterm elections intensified the pressure to rethink the norms of capitalism. Democrats won control of the House of Representatives, and candidates jockeying to take on President Donald Trump in 2020 aren't being shy about staking out their positions. Warren earlier this week proposed a so-called "ultra-millionaire tax" on households worth at least $50 million.

Warren ended the letter to Lampert with eight queries, including whether Lampert would commit to a five-year pause on share buybacks and provide details of his plans to avoid conflicts of interest and invest in the company. She requested a response by Feb. 14.

"I believe in capitalism," Warren told Bloomberg TV on Wednesday, "but capitalism without rules is theft."

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Big Sears creditor objects to Lampert's bid
By Ben Miller
Chicago Business Journal
January 28, 2019

The Pension Benefit Guaranty Corporation, a U.S. government agency that protects the pension benefits of private-sector pension plans, is objecting to the planned purchase of Sears Holding Co. by its chairman, Eddie Lampert.

Earlier this month, Lampert and his ESL Investments hedge fund proposed a $5.2 billion bid for the bankrupt Hoffman Estates, Illinois-based retailer that will keep more than 400 stores open and save nearly 50,000 jobs.

But last week an official committee of unsecured creditors opposed Lampert's bid. They allege in court filings in U.S. Bankruptcy Court in White Plains, New York that "years of misconduct" by Lampert led to the demise of Sears, and that Lampert's been bleeding the company for the past few years.

Now, the government pension protector PBGC is opposing the bid.

After Sears filed for bankruptcy protection on Oct. 15, PBGC said "if circumstances require, we are prepared to step in and provide PBGC-guaranteed benefits. The plans, which cover about 90,000 workers and retirees, are underfunded by about $1.5 billion."

On Jan. 18, PBGC said it was taking responsibility for Sears Holdings Corp.'s two defined benefit pension plans.

Although it's a government agency, PBGC said it "receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income, and, for the single-employer program, assets and recoveries from failed single-employer plans."

Before Sears announced its bankruptcy, PBGC "obtained an interest in the company's Kenmore and DieHard trademarks," according to The Wall Street Journal, and that interest would be lost if the bankruptcy court accepted Lampert's buyout offer for Sears.

On Saturday, the PBGC filed with the bankruptcy court its objections to Lampert's bid.

"PBGC has joint and several claims against each of the debtors (Lampert and ESL) and KCD (Kenmore Craftsman DieHard) in the estimated amount of $1,737,500,000. In light of these circumstances, PBGC objects to the Proposed Cure Amount (Lampert and his bid placed the value of the Kenmore and DieHard trademarks at $0)," PBGC said in its filing.

Lampert and ESL didn't have a comment for the Journal on the PBGC court filing but last week, in response to the official committee of unsecured creditors' allegations that Lampert was trying to "steal the remaining assets of Sears," an ESL spokesman said the "processes we followed are unimpeachable."

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Sears Creditors Challenge Retailer's Sale to Lampert
By Peg Brickley & Soma Biswas
The Wall Street Journal
January 25, 2019

Sears's creditors outline how the billionaire's hedge fund profited from stock buybacks, spinoffs and interest charges

Sears Holdings Corp. Chairman Edward Lampert and his hedge fund ESL Investments Inc. deployed stock buybacks, spinoffs and dividends to rake in billions of dollars while stripping the 126-year-old company of assets and cash, according to an investigation by the retailer's creditors.

In a court filing challenging the planned sale of Sears to Mr. Lampert, the official committee of unsecured creditors tracked what it claims was a deliberate strategy that began in 2005, shortly after the billionaire took charge of what was then a profitable company. They allege he spun out businesses and collected dividends, and that he made loans and collected interest and fees on them. Creditors want court permission to sue Mr. Lampert and his hedge fund.

Mr. Lampert has repeatedly denied accusations that he steered Sears into ruin for his own benefit. When he made money selling off the company's real estate and businesses, so did other shareholders, he has said.

An ESL spokesman on Thursday said the committee's statements "are misleading or just flat wrong." The spokesman also referred to previous comments describing the deals as fair and beneficial to all Sears stakeholders, adding that the "processes we followed are unimpeachable."

Creditors said in their filing in U.S. Bankruptcy Court in White Plains, N.Y., that Sears spent most of its cash between 2005 and 2008-$6 billion-on share buybacks instead of investing in stores. Once the cash was depleted, Sears began spinning off businesses, and finally, started borrowing from ESL. The spinoffs of Sears Hometown, Sears Canada , Lands' End and Seritage added more than $4 billion to Sears's coffers, the company's annual reports show.

In just the past five years, ESL has walked away with at least $700 million in dividends, fees and interest on loans that the hedge fund made to Sears, creditors said in their filing.

Mr. Lampert still owns valuable stakes in companies built on Sears's real estates and businesses. Sears's shareholders, meanwhile, have seen their stockholdings plunge.

Mr. Lampert is set to ask a bankruptcy judge on Feb. 4 to sign off on the $5.2 billion deal that gives him more than 400 stores in exchange for a series of agreements to absorb some of Sears's bills, including $1.3 billion that he says the company owes him. Key to the buyout is a settlement in which Sears agreed not to challenge his right to bid with debt instead of cash. Mr. Lampert agreed to pay $35 million for that settlement, which averts any risk that the company will challenge the validity of the $1.3 billion loan from Lampert affiliates to Sears.

Lawyers for creditors, meanwhile, want to proceed with a suit attacking the validity of Mr. Lampert's loans. They say Sears was in such bad financial shape that those loans should be characterized as capital contributions, and written off, instead of repaid. Such a suit is worth more than the $35 million settlement, they said.

Mr. Lampert has directed the company to spin off its best assets over the past seven years to shareholders-the biggest of which was ESL itself-and those spinoffs provided "substantial profits" to ESL, creditors claim in their court papers.

ESL said Thursday that it has provided Sears with much-needed financing, including $2.4 billion in various loans and debt. "These financings and other transactions involving Sears' assets were undertaken to facilitate the company's continued operations and implement its transformation plan," ESL said.

Creditors allege that the hedge fund also made money on Sears through stock buybacks, thought these also enriched other shareholders. Instead of investing in its stores, Sears spent most of its cash on hand on buybacks, the committee said. The buybacks boosted Sears's share price, making Mr. Lampert's holdings more valuable, while also entitling ESL to collect higher fees from its hedge-fund investors, according to the committee's complaint.

Once Sears was drained of cash, it was ripe for asset-stripping, creditors contend.

Sears got less than it should have for valuable businesses-from the Lands' End apparel and home-goods unit to Sears Canada to some of its most valuable real estate-the complaint says. Creditors say ESL paid little or nothing for stakes in businesses that boomed in value.

ESL became the majority shareholder of Sears Hometown & Outlet Stores, for example, after a rights offering in 2012 that was allegedly priced low. On the first day of trading, the share price doubled and ESL chalked up a one-day profit of $226.5 million, court papers say.

In the same court filing, ESL also noted that proceeds of some of loans were used to pay certain creditors such as the company's defined-benefit pension fund.

This is not the first time unsecured creditors committee has made these allegations against ESL. In a court filing in November, ESL responded to similar charges, saying its investments in Sears, including loans to Sears, "provided a runway for Sears to implement its strategic turnaround plan and did not result in any 'windfall for ESL.'"

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PBGC to Pay Pension Benefits for Employees and Retirees at Sears and Kmart
PBGC
FOR IMMEDIATE RELEASE
January 18, 2019

WASHINGTON - The Pension Benefit Guaranty Corporation is taking steps to assume responsibility for Sears Holdings Corporation's two defined benefit pension plans, which cover about 90,000 people. The national retail chain headquartered in Hoffman Estates, Illinois, operates through its subsidiaries, which include Sears, Roebuck and Co. and Kmart Corporation.

Sears filed for Chapter 11 protection on October 15, 2018. PBGC is stepping in to become responsible for the company's two pension plans because it is clear that Sears' continuation of the plans is no longer possible.

"Our mission is to protect the retirement income of plan participants and their families," said PBGC Director Tom Reeder. "When it's no longer possible for plan sponsors to maintain their pension plans, PBGC plays the crucial role of providing lifetime retirement income for the workers and retirees."

PBGC has worked with Sears for several years to improve funding for the company's plans. PBGC estimates that the Sears' plans are underfunded by $1.4 billion leaving them 64 percent funded.

PBGC is seeking to terminate the plans as of January 31,2019. The agency will become responsible for the pension plans when Sears agrees or a court orders plan termination.

Until PBGC assumes responsibility for the pension plans, they remain the responsibility of Sears Holdings Corporation.

Retirees will continue to receive benefits without interruption, and future retirees can apply for benefits as soon as they are eligible. Sears pension plan participants with questions about their benefits should contact Sears Holdings Pension Service Center at 1-800-953-5390, Monday through Friday 8:00 a.m. to 6:00 p.m., Central Time.

PBGC covers Sears' two pension plans under its Single-Employer Insurance Program. Benefit accruals under the plans have been frozen since 2005. PBGC expects that its guarantees will cover the vast majority of pension benefits earned under these plans.

Termination of the Sears pension plans will not have a significant effect on PBGC's financial statements because the claim was previously included in the agency's fiscal year 2017 and 2018 financial statements, in accordance with generally accepted accounting principles.

About PBGC:

PBGC protects the pension benefits of nearly 37 million Americans in private-sector pension plans. The agency operates two separate insurance programs - one covering pension plans sponsored by a single-employer and another covering multiemployer pension plans, which are sponsored by more than one employer and maintained under collective bargaining agreements. PBGC is currently responsible for the benefits of about 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income, and, for the Single-Employer Program, assets and recoveries from failed single-employer plans.

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Sears Holdings: You Missed The Big Short, Don't Miss The Big Long
By Eric Moore
Seeing Alpha
January 17, 2019

Summary

The 5.2 billion-dollar bid by ESL will be approved by the Bankruptcy Court.

The common stock of SHLDQ will not be wiped out, but all shareholders should buy Warrants and Unsecured 12/15/2019 Bonds to protect against dilution.

The 2nd Lien 10/15/2018 Bonds are worth par plus accrued interest.

Eddie Lampert has not been self-dealing. All shareholders received a pro rata share of all spin-offs.


The financial media and mainstream press have been preaching doom and gloom about the Sears for years, mainly based on the drastic decline in revenue and stock price over the last seven years. However, the accusations that Eddie Lampert has committed fraud or has asset stripped the company are just absurd. Eddie Lampert is not Gordon Gecko.

Nothing in his history shows that he has been unfair to partners, investors, employees or fellow shareholders. Some of his ideas at Sears Holdings did not work, maybe he closed the losing stores to slow, perhaps he bought back stock to high a price (only time will tell). With all this considered, loaning the company money does not make him a crook or some sort of corporate raider. He has invested more than anyone and, therefore has more to lose. He should be able to credit bid his debt to purchase assets.

The media has been unfair to Eddie Lampert

The same media that hailed Eddie Lampert as the "The Next Warren Buffett" in Magazine Cover stories a few years ago, now say at best case he is a corporate raider (similar to Gordon Gecko in the film Wall Street) that asset-stripped Sears of all the good parts and drove the company into bankruptcy.

At worst case, they say he is a hedge fund fool who tried to turn around a failing retailer. Neither are true. He is a relentless genius who refuses to give up. He has a vision and come hell or high water (or bankruptcy), he will see it through. The media has been biased on anything Eddie Lampert or Sears related since at least 2015. No other retailer or hedge fund manager has been treated with such disdain and vitriol.

I still believe Eddie Lampert is the shareholders' most valuable asset. He has major skin in the game. At last year's annual meeting, Eddie said that SHLD will continue to shrink until it is profitable. I mentioned in a previous article that we needed roughly 400 stores, Shop Your Way, Diehard, Kenmore, and Eddie at the Helm to be profitable again. Ironically, that appears to be what Newco will consist of. It's so exciting to be buying at these low prices.

Sears Holdings: The Big Long

I believe Sears Holdings is a much better investment than GGP, the detractors and naysayers say based on the Chapter 11 filing. I should admit I am wrong about my sum of the parts thesis and the value in SHLD.

However, the drop in stock price and bonds makes the opportunity even greater. I still see significant value in the Bonds, Warrants, and Common stock based on the amount of the ESL Bid and the long-term prospects of Sears Reinsurance and a nearly debt-free Newco. You clearly can't pay over 5 billion dollars for a company worth zero on a going forward basis.

Assuming most of the debt that is not already (PIK) Paid in Kind will be converted into Newco equity, the new entity will emerge or go public:

A. With no pension payments for two years (The pension is still underfunded but paid up until at least 2020)

B. With no taxes for years (the NOLs are over five billion dollars)

C. With no significant interest payments (most bondholders and other debt would be converted into stock)

D. No lease payments from hundreds of closed stores

The Reorganization Plan is Due February 18

1. I believe the common stock will be diluted, receive a percentage of Newco and warrants and/or evidence of indebtedness certificates but will not be wiped out

2. The 12/15/2019 Bonds are worth par (for a return of 13X at today's price)

3. The 2nd lien 10/15/2018 Bonds are worth par (for a return of 5X at today's price)

The unsecured creditors committee allege they have found proof of potential self-dealing by ESL and/or Eddie Lampert. I vehemently disagree and will make the legal case again below.

Eddie Lampert has not been Self-Dealing

Below is the standard for self-dealing and the relevant case law.

a. The controlling stockholder is on both sides of the transaction and dictated its terms; and

b. There is a special benefit to the controlling stockholder in which the minority stockholders do not share.

Sinclair Oil, 280 A.2d at 720-22; Gilbert v. El Paso Co., 490 A.2d 1050 (Del. Ch. 1984), aff'd, 575 A.2d 1131 (Del. 1990).

If the benefit is shared with the minority, self-dealing generally will not be found, even if the controlling stockholder acted to advance its own interests.

For example: in Sinclair Oil, the controlling stockholder needed cash and caused the company to issue large dividends, which were proportionately shared with the minority stockholders. Although this action drained the company of some cash and hurt expansion opportunities, no self-dealing was found because there was no detriment to the minority stockholders as they shared in the dividend proportionately. Id. at 720-22 ("The dividends resulted in great sums of money being transferred from Sinven to Sinclair. However, a proportionate share of this money was received by the minority shareholders of Sinven. Sinclair received nothing from Sinven to the exclusion of its minority stockholders. As such, these dividends were not self-dealing.")

In the case of Sears shareholders, all minority Sears shareholders have participated in the spin-offs on a pari-passu basis, including the prize spin-off Seritage Growth Properties The claims that Seritage was sold far below its true value were already settled. No self-dealing will be found.

Even when loans were made, shareholders were allowed to participate on a pari-passu basis when the 12/15/2019 Unsecured Bonds and warrants were offered in 2014. Recently in his blog, Eddie Lampert said:

"The Company has consistently discussed financing and capital structure alternatives with numerous banks and investors and we have worked hard to attract the most favorable financing possible. To date, ESL has been willing to provide financing on terms that were at least as favorable as might be achievable in the market and, when practical, was on a basis that allowed other investors to participate on the same terms."

The allegations that Eddie Lampert has cherry picked the best parts of Sears and left the carcass for shareholders and other creditors are utterly ridiculous. Some are suggesting the ESL loans should be treated as equity and subordinated. Equitable Subordination primarily occurs when fraud or a breach of fiduciary duty has occurred. Eddie Lampert has done neither.

The ESL Offer is for Substantially All the Assets of SHLD

The ESL bid Reads:

On January 9, 2019, Transform Holdco submitted a revised offer (The revised Proposal) to acquire Substantially all of the go-forward retail footprint and other assets and component businesses of Holdings as a going concern..

The words "substantially all" may seem insignificant until you read the Bond Documents. A provision in the Bond Indenture on page 30 entitled Limitation on Mergers and Sales of assets requires that if substantially all the assets of Sears are sold, the Bonds must be assumed by the purchaser, in this case, the ESL entity Transform Holdco. (see below)

Limitations on Mergers and Sales of Assets

The Indenture provides that the Company will not consolidate with or merge into another Person, or sell other than for cash or lease all or substantially all our assets to another Person, unless

• either the Company is the continuing Person, or the successor Person (if other than the Company) expressly assumes by supplemental indenture the obligations of the Company under the Indenture and the notes (in which case, except in the case of such a lease, we will be discharged from these obligations); and

• immediately after the merger, consolidation, sale or lease, no Default shall have occurred and be continuing.

This provision means that the added protection for bondholders is that the ESL offer of over 5.2 Billion triggers this part of the indenture, and therefore at worst case, Newco must assume the bonds as a part of the purchase. (The same provision exists in the 12/15/2019 Unsecured Bonds).

Bankruptcy judges can't just wipe out provisions in Bond Indentures, the secured Bonds and unsecured 12/15/2019 Bonds are worth par plus accrued interest (if used to exercise the warrants). I have found no Bankruptcy cases in which a bond indenture was just ignored or wiped out in Bankruptcy court.

Conclusion

If you want above average returns, you need to do deeper research, and thinking about the companies you invest in, you must learn to see what others don't see and/or refuse to see. You must understand the long game and what isn't obvious at first glance or on the surface.

In this case, people think SHLD is a "dying retailer" and it just may be, but when you see a brilliant guy like Eddie Lampert sticking with a company like SHLD for over a decade and not selling from a high of over $150 a share to a low of under .20 cents a share, it should make you look deeper.

I looked deeper and I clearly see what Eddie Lampert sees. Based on what I found, at these low prices, it is mathematically impossible to have a permanent loss of capital over the long term even if all the stores eventually fail, (as did the Textile mills owned by Berkshire Hathaway) that is a real margin of safety, the ability to make a profit even if the underlying business fails. (See Also Warren Buffett's investment in Blue Chip Stamps).

Eddie Lampert is a genius that can solve any problem SHLD has or could have had, he has chosen to buy the company out of Bankruptcy to save over 45,000 jobs and cut unnecessary expenses.

I never plan to sell my stock and will continue to buy as long as it is grossly undervalued.

Here is a clue: If you look beyond the retail business and look at what remains even if all the stores eventually fail, you will see that some of the current liabilities will actually transform into future assets for long-term shareholders.

I'm all in with Eddie Lampert and SHLDQ.

Disclosure: I am/we are long SHLDQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I provide consulting and research services to medium and large shareholders of SHLDQ and SRG,some of the information provided to my clients has not been published on Seeking Alpha and/or is published after it has been sent to them first.

* I have no association with ESL or Eddie Lampert, Bruce Berkowitz or Fairholme Funds

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Here's What Eddie Lampert Should Do With Sears Now
By Sarah Halzack
Daily Herald
January 17, 2019

He won his bid to save the storied department store. Here are three suggestions for giving it a fighting chance.

Sears Holdings Corp. will stay out of the retailing graveyard for a bit longer.

Eddie Lampert, the company's chairman and major shareholder, prevailed in a bankruptcy auction with a last-ditch plan to save the storied department store from liquidation and preserve thousands of jobs, Bloomberg News reported, citing a person with knowledge of the situation. He won out in part after sweetening his bid, now valued at more than $5 billion. The agreement, reached early Wednesday, still needs to be approved by the U.S. judge overseeing the bankruptcy.

Lampert may have beat out other bidders, but he hasn't exactly won himself a prize. Sears remains as troubled as ever, and this takeover won't change that. I still believe it's only a matter of time before the company winds up in liquidation.

Dead Store Walking

Sears has been unprofitable for many years, but has been kept afloat by Lampert lifelines. But this week's events got me thinking: What would I recommend Sears do at this point, if not to fully return to health, then at least to hang on a little longer? Here are three ideas:

MAKE A NOSTALGIA PLAY: Shopping at Sears now is a sad experience, but the department store occupies a distinct place in American history. Its Craftsman homes still dot our suburbs, the tower it built in Chicago is iconic (even if it no longer carries the retailer's name) and its catalogs were once a familiar fixture in our living rooms.

I know Sears doesn't have oodles of cash to throw at lavish marketing campaigns. But what if it stopped trying so hard to lure customers with Shop Your Way rewards - a program I have literally never heard a shopper rave about - and went for our heartstrings instead?

I'm imagining some ads showing the remarkable story of how Sears evolved from selling America horse buggies by catalog to offering us 4K TVs via our smartphones. Or maybe something with millennials and Gen X-ers sharing memories of making childhood Christmas lists from the Sears Wish Book, and grandparents recalling the pride they felt when they bought their first Craftsman toolbox. In other words, remind shoppers that many of them - with the exception of Gen Z-ers - probably have some latent affection or nostalgia for this brand.

WAVE THE WHITE FLAG OVER KMART: The discount chain is in a brutally competitive corner of retailing. Walmart Inc. and Target Corp. are in their best shape in years, and Dollar General Corp. is a retailing rock star that is blanketing America's rural areas at an astonishing pace. Kmart simply doesn't have a prayer of keeping up with them.

Kmart had only 360 locations as of August and has shuttered dozens of stores since then. It doesn't have the ubiquity and scale to compete on important offerings such as click-and-collect. And its gross margin lags that of Sears, presumably because a significant share of its business comes from the food-and-drug categories.

Kmart's Challenge

Kmart has lately had lower gross margin than Sears. Fierce discounting wars, as well as its reliance on grocery sales, make it hard to see how it could quickly improve on this. Maybe focusing on the Sears brand alone - and reaping savings from ceasing to operate Kmart stores - wouldn't be a bad idea.

THINK STRATEGICALLY ABOUT LABOR ALLOCATION: Sears won't be in a position to dole out generous raises, and I suspect many of its employees already are eyeing the exits. But it should do everything it can to make sure it puts its best workers in the places it can make the most difference.

Appliances are still a relative bright spot for Sears. And we've seen from the recent strength of Best Buy Co. how powerful it can be to focus on first-rate customer service when shoppers are making an expensive, highly considered purchase. Sears should make sure its most knowledgeable, consultative employees are stationed in the appliance section, in theory helping it score sales in a category where it still competes reasonably well.

Thanks, Kenmore

According to estimates from UBS, Sears Holdings still commands a healthy share of the major appliance market. Even if Sears does all of these things, its days are likely numbered. But if Lampert wants to feel like he truly gave the salvage effort his best shot, these are the things he ought to try.

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Lampert wins bid to keep Sears alive
By Crain's Chicago Business
January 16, 2019

The company chairman won a bankruptcy auction with a plan that will keep the retailer in business and seek to save tens of thousands of jobs.

Eddie Lampert won a bankruptcy auction for Sears with a plan that will keep the retailer in business and seek to save tens of thousands of jobs, according to a person with knowledge of the discussions.

Lampert's bid prevailed over competing proposals from liquidators that would have forced the 126-year-old department store chain to shut down and sell its assets. The bid is valued at over $5 billion and represents an improvement of more than $150 million over the hedge fund manager's previous offer, the person said, asking not to be identified because the talks are confidential.

The agreement, reached in the wee hours of Wednesday, caps two days of discussions behind closed doors in New York to determine whether Sears would be worth more dead or alive. Sticking points during the talks had included whether Sears Chairman Lampert should be insulated from lawsuits over his previous turnaround deals for the company, Bloomberg previously reported. The final agreement doesn't include such a release for Lampert, the source said.

Representatives for Sears Holdings and at ESL Investments, the hedge fund run by Lampert that made the offer, didn't immediately respond to a request for comment outside business hours. The agreement still needs to be approved by the U.S. judge overseeing the bankruptcy.

ESL is Sears's biggest shareholder and creditor. Lampert now faces the challenge of returning a slimmed-down version of the company to profitability, after billions of losses under his management.

The winning bid is the latest in Lampert's long list of maneuvers to turn the company around. Since engineering the $12.3 billion acquisition of Sears by Kmart in 2005, Lampert has shuttered hundreds of money-losing stores, cut more than $1 billion in annual expenses, and spun off units such as Lands' End Inc.

The retailer, for years called Sears, Roebuck & Co. and famous for its massive catalog, boomed in the decades after World War II along with a growing middle class. But it wasn't able to keep up with shifting consumer habits as online rivals including Amazon.com Inc. siphoned off shoppers, while turnaround efforts were hobbled by mountains of debt.

Sears sold everything from Craftsman tools to Kenmore appliances, but it lost its footing in the 1980s with expansions into financial products such as banking, mortgages, insurance and credit cards. Walmart Inc. supplanted Sears as the biggest retailer in the early 1990s.

The company was started by Richard Sears, a train station agent in Minnesota who began selling watches by mail in 1886, according to its website. He soon partnered with watch repairman Alvah Roebuck.

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Sears survives, what now?
By Clark Schultz
Seeking Alpha
January 16, 2019

Investors dabbling with the OTC-listed shares of Sears Holdings are seeing a 35% gain today off news that Eddie Lampert may in fact keep the department store chain alive in some form.

Some Sears creditors are expected to challenge the deal in front of the bankruptcy judge before Lampert can claim victory.

Even if Sears survives, skepticism persists within the retail industry. "While there is no doubt that a shrunken Sears will be more viable than the larger entity which struggled to turn a profit, we remain extremely pessimistic about the chain's future," writes GlobalData Retail managing director Neil Saunders.

Meanwhile, Bloomberg suggests that Lampert and team give up on the Kmart chain and its decimating margins.

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Hoffman Estates on Sears' possible collapse: 'Village has survived tougher challenges'
By Eric Peterson & Elena Ferrarin
Daily Herald
January 9, 2019

Uncertainty over the fate of Sears Holdings found no resolution Tuesday, but Hoffman Estates officials emphasized there's no call to worry about the finances of the Northwest suburb where the longtime retail giant is headquartered.

"The village is fine and we're really more concerned about the employees who work there," Mayor Bill McLeod said.

Sears Chairman Eddie Lampert received another chance to save the 126-year-old company from liquidation as long as his hedge fund deposits $120 million by Wednesday afternoon in its bid to escape from bankruptcy.

An auction has been set for Jan. 14 to compare Lampert's bid with that of others more interested in liquidating Sears.

Whatever direction Sears' destiny takes, it will always be an important part of Hoffman Estates' history, McLeod said. Construction of its corporate headquarters in the early 1990s jump-started development of the village's western edge, he said.

Since then, it's attracted many other businesses to the area, including some leasing space on the Sears campus, McLeod said. He saw little danger of the buildings becoming vacant and ultimately razed, as was the fate of the former Allstate office campus in neighboring South Barrington.

"The campus is beautiful," McLeod said of the Sears site. "The buildings are beautiful."

The Sears campus occupies only about 200 acres of the nearly 800-acre economic development area the company spearheaded. The fate of that entire area will have more financial impact on Hoffman Estates than will the fate of the Sears campus alone, officials said.

"The village has survived tougher challenges, including the Great Recession," Village Manager Jim Norris said. "Sears has been a wonderful corporate citizen. We're hopeful that Sears will rise in form from the bankruptcy."

Indianapolis-based Simon Properties, which operates more than 200 retail centers across the nation, still had Sears stores at 29 of them at the end of September, including at Woodfield Mall in Schaumburg.

But Les Morris, director of corporate public relations, said it was too soon to guess the impact of Sears' bankruptcy on Simon's shopping centers.

"It's so fluid," Morris said, just after learning of Lampert's eleventh-hour reprieve. "I don't want to speculate."

But customers at the Sears store in Woodfield Mall had strong opinions about the retailer's uncertain future.

While browsing through the store's luggage section, Tomislav Todosijevic of Des Plaines said it would be a shame if Sears ceased to exist after so many years.

Shoppers were scarce among somewhat sparse racks of inventory with signs advertising sales up to 70 percent off for clothes and shoes.

Amber Kellmer of McHenry, who browsed for sales with her boyfriend, said she was disappointed at prices and selection.

"I used to be a fan ... but a lot of their stuff is going out of style and other stores have cheaper alternatives," she said.

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Lampert readies higher bid to save Sears
By Bloomberg
Chicago Crain's Business
January 9, 2019

Just ahead of an afternoon deadline, and with the retailer teetering on the edge of liquidation, advisers to Eddie Lampert's ESL Investments hedge fund are drafting a bid that would satisfy a bankruptcy court.

Eddie Lampert's ESL Investments hedge fund is planning to submit an improved offer to keep Sears Holdings Corp. in business.

Advisers for the hedge fund are drafting a bid that would satisfy conditions set in U.S. bankruptcy court on Tuesday, said a person with knowledge of the matter. The revisions include committing more capital, the person said.

ESL is planning to disclose its intentions in a regulatory filing, said the person, who wasn't authorized to comment publicly. Lampert and ESL face a court deadline later today to submit a revised offer. The Sears chairman and former chief executive officer needs to put up $120 million by today if he wants to take part in an auction against other bidders who want to liquidate the company.

Representatives for Sears Holdings, based in Hoffman Estates, Illinois, declined to comment. A representative for ESL referred to its previous comments, which said the proposal "provides substantially more value to stakeholders than would be the case in liquidation and is the only option to save an iconic American retailer and up to 50,000 jobs."

LIQUIDATION LOOMS

Sears is teetering on the edge of liquidation after the rejection of a previous offer from Lampert, whose hedge fund ranks as Sears's biggest shareholder and creditor. Lampert made a $4.4 billion bid to take over selected stores and keep the chain open, but he's been unable so far to convince some of the other creditors that he could ever make Sears profitable again.

Lampert, who engineered the acquisition of Sears by Kmart in 2005, held about $2.5 billion in Sears debt as of September, the result of multiple attempts to keep the chain afloat. It shuttered hundreds of money-losing stores, cut more than $1 billion in annual expenses, and spun off units such as Lands' End Inc.

The original bid doesn't have sufficient upside for other creditors who are being asked to drop pending lawsuits against Lampert and ESL that challenge the validity of some of his prior rescue deals, according to Peter Kaufman, president of investment bank Gordian Group, which isn’t involved in the Sears case.

"Lampert has to beat the creditors; view that a combination of liquidation recovery from the assets plus litigation claims against him" isn't worth more than his plan to keep it as a going concern, Kaufman said. "ESL needs to make their deal more attractive than not, if he wants the creditors to play along."

Some creditors have concluded that Sears is worth more to them dead than alive if the stores and other assets are auctioned off. U.S. bankruptcy court Judge Robert Drain reminded the Sears lawyers at a hearing this week that the company has an obligation to review all its options, not just the offer from Lampert.

One obstacle could be the official committee of unsecured creditors, who said in court they will continue to challenge the legitimacy of the liens underpinning the debt ESL holds. This could hobble Lampert's bid, because he's offering to pay for Sears in part by trading some of those debts for ownership of Sears.

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Sears Not Liquidating Yet As Court Gives Lampert More Time For His Bid
By Wyco Researcher
Seeking Alpha
January 9, 2019

Eddie Lampert is still in the running to buy most of the assets of Sears Holdings. At a status conference today in the White Plains federal bankruptcy court, various parties agreed that Lampert will be allowed to participate in the January 14 auction. He has to still make major modifications to his bid and has agreed to make a $120 million deposit by 4pm tomorrow. $17.9 million of that bid is non-refundable to cover various costs in the event his bid is not the winning bid. There are other bidders for assets, including groups bidding to completely liquidate Sears and others only bidding on specific stores.

Brief Background

Lampert/ESL submitted a tentative bid on December 5 followed by a Going Forward Bid and an Alternative Bid on December 28. His Going Forward Bid was considered not to be a "qualified" bid by the January 4 deadline, which would have let him participate in the January 14 auction for Going Forward Stores. There have been hours of meetings after the deadline trying to "cure" some of the problems with his bid, but there are still some problems with it. While nothing was stated in open court today, the problems seem to be the uncertainty of covering administrative claims and the uncertainty that his credit bid may not have a valid claim on collateral.

Today in White Plains there was a status conference. The open-court conference lasted only a few minutes, but there were meetings in the hall and conference rooms during the morning. At about 11:20 am it was announced that the conference would be adjourned until 12:30 pm. After even more private meetings, Judge Drain held a very short open court conference this afternoon.

New Agreement

Various parties have agreed to let Lampert/ESL participate in the January 14 auction, but he must make changes to his bid. The agreement requires Lampert to make a deposit of $120 million by 4 pm tomorrow. In order to cover various expenses, including the extra time Sears would remain operating, $17.9 million is non-refundable if his bid fails.

Clearly, it seems that Sears is seriously considering to close all stores because the agreement also includes a change to the store closing motion from a 10-day period to object to 7 days. If they decide to close the stores, they want to do it as soon as possible after the decision is made. They can close stores quickly by using the same procedure they used to close 80 stores recently. As per docket 1444:

"Pursuant to the Store Closing Order, the Debtors may designate a location as a Closing Store and conduct Store Closing Sales pursuant to the Store Closing Procedures without further order of the Bankruptcy Court by filing and serving by email or overnight mail on the Notice Parties with this notice of intent (the "Notice of Intent") and a copy of the Store Closing Order. The Notice Parties and affected parties have ten (10) calendar days' notice (the "Objection Deadline") from the filing and serving of this Notice of Intent to object to the terms of the Store Closing Procedures and request a hearing on the objection. If no objection is filed, the Debtors may close the location and conduct Store Closing Sales at such locations in accordance with the terms of the Store Closing Order."

There was also a critical change regarding credit bidding by Lampert. It was agreed that there would not be a hearing to consider his right to credit bid prior to the auction. They agreed to waive "a in docket 816" that required a hearing. His credit bid will, therefore, not be pre-approved, but he still can use a credit bid at the auction, at which time the issues regarding his credit bid would be considered in valuing and comparing his bid to other bidders. In my opinion this is a huge loss for creditors. The credit bid hearing would have been the ideal time to assert that his secured debt should either be recharacterized as capital investment/equity or subordinated to other debt holders.

I was surprised that a lawyer representing landlords mentioned in court that his client was not contacted at all after they submitted a tentative bid for some stores in early December. He wanted to know if his client was going to be allowed to participate in the auction. Without proper notifications to bidders, it seems that the auction could be open to litigation. Judge Drain also seemed a little annoyed regarding the lack of proper communication. This raises the issue, in my opinion, that Sears is not seriously considering bids on specific stores but is just looking at bids from liquidators and Lampert/ESL.

Going Forward Plan Is Unrealistic

Many stakeholders in the Ch.11 process for Sears are wondering how the retailer can expect to operate as a going concern and that Lampert's plan to stay in business with a smaller group of stores is not realistic. The monthly operating report-MOR for November (docket 1251) is indicative of how bad the current operations are.

Remember, November is part of the Christmas shopping season that includes Black Friday. Sears had a loss of $125 million for the month. Even after subtracting the reorganization charges for the month of $44 million, they still lost $81 million and they were not even paying interest on their pre-petition debt. (They were paying interest of DIP). While MORs do not follow GAAP accounting standards, the reports are still fairly good indicators of current operations.

Conclusion

Various parties, including Judge Drain, are trying hard to keep Sears operating and are willing to give Lampert special consideration. Yet at the same time, it seems that if and when Sears decides to close all stores, they want to do it as fast as possible.

By parties questioning if Lampert's bid can even cover high priority administrative claims, it indicates that lower priority classes such as SHLDQ shareholders and unsecured note holders should not expect to get any recovery under a reorganization plan, except for the possibility of some payment for releases.

Now we wait until the January 14 auction and the February 1 sales hearing.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Eddie Lampert May Have Kept Himself From Winning Sears Bid
By Eliza Roalds-Hannon & Lauren Coleman-Lochner
Bloomberg
January 8, 2019

Sears Chairman Eddie Lampert may have himself to blame for the rejection of his bid to take over the bankrupt retailer.

Lampert wanted his payment for parts of Sears Holdings Corp. to include the conversion to equity of $1.3 billion in debt that his hedge fund extended to the retailer.

Those loans, however, are the subject of controversy. Other creditors have threatened to pursue claims against Lampert and the hedge fund, ESL Investments Inc., claiming the deals created conflicts of interest. It was one reason the company's advisers rebuffed the Lampert bid, which totaled $4.4 billion.

Sears is expected to ask a bankruptcy judge Tuesday morning whether it can proceed with liquidation, Reuters reported. The hearing was scheduled on Friday, after Lampert's offer was rejected.

Lampert intended to keep 425 stores open and 50,000 of its remaining employees on the job.

Many of those deals added to the retailer's mounting debt while granting liens on previously unencumbered assets, according to the unsecured creditors.

An ESL spokesman referred to a prior statement from the hedge fund that the transactions were valid, conducted on fair and reasonable terms and "show the firm's consistent support for Sears in its efforts to return to profitability amid disruption in the retail industry."

"Any allegation that ESL received 'sweetheart' deals is plainly wrongheaded and intended to inflame opinion against ESL," the hedge fund said in court papers.

Even if plans for a liquidation are finalized, Lampert or another bidder could still step forward to buy and operate some stores. That's what happened when Toys "R" Us announced its shutdown last year, though none of those efforts succeeded before the final stores closed. A smaller effort to revive the toy-store chain is now underway.

Sears Holdings, which also includes the Kmart chain, entered Chapter 11 protection in October with about $11 billion in debt. An auction for assets is slated for Jan. 14.

Lampert's ESL sank $2.6 billion into Sears starting in 2012 to finance a series of spinoffs, rights offerings and refinancings. Other stakeholders have challenged Lampert's claim to repayment on that debt. Lampert was Sears's biggest shareholder at the time he made the loans, and his position on both sides of those deals points to conflicts of interest, they say.

More Scrutiny

Creditors have requested more scrutiny of those deals, asking the court to examine transactions including the spinoff of its Lands' End clothing line and other so-called related-party transactions.

Lampert's latest rescue offer asked to close the books on challenges to those deals. They include the 2015 sale of more than 200 of its most valuable stores to the Seritage Growth Properties real estate investment trust, the 2012 separation of its smaller format Sears Hometown and Outlet divisions, and various debt transactions.

Some creditors have asked a question that's lingered for years: Why try to revive Sears now after years of unsuccessful effort? In November, a group of unsecured creditors called Lampert's push to keep the retailer afloat "an unjustified and foolhardy gamble with other people's money."

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Sears to ask bankruptcy judge for approval to liquidate: sources
By Jessica DiNapoli and Mike Spector in New York
Reuters
January 8, 2019

Sears Holdings Corp will ask a bankruptcy judge on Tuesday if it can proceed with liquidation after it could not reach an agreement on Chairman Edward Lampert's $4.4 billion takeover bid, casting doubt on the survival of the 126-year-old U.S. department store chain, people familiar with the matter said.

Should Sears liquidate its assets, it would become one of the most high-profile victims in the wave of bankruptcies that has swept the retail sector in the last few years, as the popularity of online shopping exacerbates the fierce price competition facing brick-and-mortar stores.

In a stark contrast of the diverging fortunes of e-commerce firms and many physical retailers, Amazon.com Inc became the world’s most valuable company for the first time this week, reaching a market capitalization of close to $800 billion.

Sears, which filed for bankruptcy protection last October, may have to close some 500 stores it is still operating, potentially putting up to 68,000 people out of work, the sources said. Its vast inventories of tools, appliances and store fixtures will be sold in fire sales, the sources added.

U.S. Bankruptcy Judge Robert Drain in the Southern District of New York, who is presiding over the case, could decide to give Lampert more time to improve on his bid, the sources said. A bankruptcy auction for Sears' assets is not due until Jan. 14.

The sources asked not to be identified because the matter is confidential. Representatives for Sears and Lampert offered no immediate comment.

Sears will now plan for a separate February auction of its assets and real estate, some of the sources said. Lampert, who also made a back-up offer for some of the assets as part of his initial $4.4 billion proposal, will make another bid, the sources added.

A main point of contention in the negotiations between Lampert and Sears centered on whether Lampert's bid fully addressed the bankruptcy costs that Sears has racked up, some of the sources said.

The costs, which include bills from lawyers and financial advisers, are expected to exceed $200 million, those sources said.

Lampert's bid proposed forgiving $1.3 billion of debt he holds in exchange for ownership of the reconstituted Sears, a bankruptcy maneuver known as a credit bid.

In addition, Lampert wanted a release from legal exposure related to a series of transactions he completed with the retailer before it filed for bankruptcy protection. Those made him the company's biggest creditor, in addition to its largest shareholder.

Lampert's offer did not include putting up cash to back the credit bid. That raised concerns in the negotiations since the maneuver might not be allowed in court, the sources said, given ongoing investigations of Lampert's pre-bankruptcy deals, which the hedge fund manager maintains were proper.

Unsecured creditors have pushed for Sears to liquidate, partially because they contend they will realize a better financial recovery if it does. Those creditors, which include Sears landlords and bondholders, have also questioned Lampert's pre-bankruptcy transactions with the retailer.

ICONIC RETAILER LOST ITS SHINE

The liquidation of Sears, which includes discount chain Kmart, would follow a decade of revenue declines, hundreds of store closures, and years of deals by billionaire Lampert in an attempt to turn around the company he put together in 2005 through an $11 billion deal.

Sears dates back to the late 1880s and its mail-order catalogs with merchandise from toys, medicine, gramophones, automobiles, kit houses and tombstones made it the Amazon of its time.

The iconic retailer gradually lost its shine, however, as consumers turned to e-commerce and brick-and-mortar rivals such as Walmart Inc and Target Corp.

Lampert had pledged to restore Sears to its glory days, when it owned the tallest building in the world as well as a radio station and Allstate insurance.

But critics say Lampert let the stores deteriorate over the years, even as he bought the company's stock and lent it money.

The largest U.S. toy retailer, Toys 'R' Us, tried to emerge from its 2017 bankruptcy filing but was also forced to liquidate six months later, after creditors lost confidence in its turnaround plan.

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Sears gets last-minute reprieve
By Marianne Wilson
Chain Store Age
January 8, 2019

Sears Holdings Corp. is still in the game - at least until Jan.14.

After widespread reports that the struggling, 126-year-old retailer would seek the approval of a bankruptcy court judge on Tuesday to proceed with liquidation, Sears agreed to consider a revised takeover bid from chairman Edward Lampert - via an affiliate of its ESL Investments hedge fund - that would keep the company in business.

Lampert must submit the revised offer for Sears, along with a $120 million deposit, by 4 p.m. Eastern on Jan. 9. Sears will then allow Lampert to participate in a previously scheduled auction on Monday, Jan. 14, when it will compare his offer to others by liquidators, reported CNBC.

After an auction winner has been determined, a deal will require approval from the bankruptcy court on Jan. 31, the report said.

On Dec. 28, Lampert made a $4.4 billion bid to takeover Sears. One of the main points of contention in the negotiations between Lampert and Sears was whether Lampert's bid fully addressed the bankruptcy costs that Sears has racked up.

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Sears preps for possible liquidation
By Clark Schultz
Seeking Alpha
January 7, 2019

Sears Holdings is "laying the groundwork" for a full liquidation of stores after bankers rejected the latest rescue effort by Eddie Lampert, sources tell Bloomberg,

The department store operator has reportedly brought in liquidations firms to discuss the process.

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Sears Prepares for Possible Liquidation as ESL Bid Fails
By Eliza Ronalds-Hannon, Lauren Coleman-Lochner, Lily Katz and Tiffany Kary
Bloomberg
January 6, 2019

Sears Holdings Corp. is preparing a potential wind down after Chairman Eddie Lampert's bid to buy several hundred stores out of bankruptcy fell short of bankers' qualifications, people with knowledge of the matter said.

The iconic retailer started laying the groundwork for a liquidation after meetings Friday in which its advisers weighed the merits of a $4.4 billion bid by Lampert's hedge fund to buy Sears as a going concern, said the people, who asked not to be identified because the discussions are private.

If the 125-year-old retailer does die in bankruptcy -- like Toys "R" Us in 2018, and Borders Group Inc. in 2011 -- it would mark the largest fatality yet in the retail apocalypse prompted by a shift to online shopping.

While Lampert's ESL Investments has failed to convince the bankers of the viability of its bid, it could still make last-minute improvements before a status hearing on Tuesday. Lampert also has outlined a back-up plan in which ESL would pursue the purchase of some of Sears's parts, including real estate and intellectual property, such as its brand.

Spokesmen for Sears and ESL declined to comment, as did a representative for Lazard Freres & Co., which is advising Sears.

Shortcomings

The retailer, which includes its namesake department-stores and the Kmart chain, entered Chapter 11 protection in October with $11.34 billion in debt and a warning that it risked being relegated to the "dustbin of history" with 68,000 jobs at stake.

Its filing marked the second-largest retail bankruptcy ever, according to Bloomberg Data -- just after that of real estate specialist Capmark Financial Group Inc., with $21 billion in liabilities. The third-largest, Toys "R" Us, had around $8 billion in debt. Its attempt to reorganize through bankruptcy failed.

Sears has pushed forward with the hope that it could restructure with a smaller group of more profitable stores. The bid Lampert submitted in late December intended to keep 425 stores open, while preserving up to 50,000 jobs.

But as representatives for the company -- along with creditors and other parties -- met in New York on Friday to assess the merits of the bid, they found a number of shortcomings, people with knowledge of the discussions said.

Sticking Point

Gaps remained in some of the financing and the plan wouldn't have provided enough cash to cover costs incurred in the bankruptcy, the people said. It also undervalued inventory and other assets relative to what liquidators were promising to pay.

Another key sticking point: Much of Lampert's bid rested on him getting ownership of the reorganized business in exchange for the forgiveness of $1.3 billion of debt he holds. But the validity of those very claims -- racked up in a series of spinoffs, refinancings and other transactions -- has already been challenged by a group of creditors. The ESL plan didn't include a cash backstop for that part of the bid.

ESL has said its liens are valid and came after the firm extended more than $2.4 billion of secured financing to keep Sears afloat.

Ongoing Marketing

Sears has told real estate firm Jones Lang LaSalle Inc. to continue marketing the company's properties and accepting open-market bids even though the deadline for those offers was Dec. 28, one of the people said.

Lampert's bid included a secondary proposal in case the going-concern offer were to fall through. It included buying selected real estate for $1.8 billion and Sears intellectual property, such as the brand name. Much of that plan would also be funded by forgiving some of the debt he holds.

Earlier in the bankruptcy, creditors questioned whether transactions involving Lampert had bilked them of $2.6 billion, setting the stage for conflict over deals with the very investor who is offering to salvage the company. Lampert's ESL said its transactions were made in good faith and on fair terms to other stakeholders.

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Survival of Sears hangs by thread as bid ruling said to be delayed
By Eliza Ronalds-Hannon, Lauren Coleman-Lochner and Nabila Ahmed
Bloomberg
January 6, 2019

Eddie Lampert is struggling to convince bankers for Sears Holdings Corp. that his bid to keep the retailer alive is adequate. But he'll have a little more time to try.

The hedge-fund manager came up short Friday in meeting Sears' conditions for what it considers a qualified bid to rescue the department-store chain from bankruptcy, according to people with knowledge of the discussions. The company is giving Lampert's ESL Investments additional time to address its concerns, one of the people said. A hearing has been set for Tuesday to brief Judge Robert Drain, who's presiding over the bankruptcy.

The outcome will determine whether the 125-year-old retailer survives as a going concern or is sold off in pieces. Lampert, Sears's chairman and biggest shareholder, kept Sears alive for more than a decade via lifelines and financial engineering. And he has sought to firm up his latest rescue plan ever since the company filed for Chapter 11 protection in October.

But as bankers at Lazard - along with creditors and other parties - met in New York to assess the merits of the $4.4 billion bid on Friday, it fell short on a number of fronts, the people said.

A spokesman for ESL declined to comment, as did a representative for Lazard, which is advising Sears. CNBC reported earlier that ESL's bid was facing scrutiny from Sears advisers.

Gaps remained in some of the financing behind the plan. And the bid wouldn't have provided enough cash to cover costs incurred in the bankruptcy, the people said. It also undervalued inventory and other assets relative to what liquidators were promising to pay, the people said.

Another key sticking point: much of Lampert's bid rested on him getting ownership of the reorganized business in exchange for the forgiveness of $1.3 billion of debt he holds. But the validity of those claims - racked up in a series of spinoffs and other insider dealings - has been challenged by a group of creditors. The bankers are concerned that the claims could leave the company exposed to future liabilities, the people said.

Drain had said he would require ESL to provide a cash pledge that would backstop the credit piece of its bid. But the proposal didn't include that.

ESL has said its liens are valid and came after the firm extended more than $2.4 billion of secured financing to keep Sears afloat.

Lampert, whose plan would save up to 50,000 jobs, has been trying to shape the debate by emphasizing the potential for massive job losses. The consequences aren't lost on some lenders, who are wary of being blamed for the collapse of a big, iconic employer the way their peers were in last year's dismantling of Toys "R" Us Inc.

"Our going-concern bid provides the best path forward for the company, the best option to save tens of thousands of jobs and is superior for all of Sears' stakeholders to the alternative of a complete liquidation," ESL said in an emailed statement this week.

If Sears snubs ESL, it would shift its attention to other bids to liquidate the business. Two groups submitted offers to do just that - one from Tiger Capital Group LLC and Great American Group LLC, and another from Gordon Brothers Retail Partners LLC and a unit of Hilco Global, people with knowledge of the bids said. A Great American representative confirmed its joint bid and declined to elaborate on the details. Sears and Gordon Brothers declined to comment, while Tiger Capital and Hilco had no immediate comment.

Sears was supposed to tell prospective bidders whether they've been selected as qualified bidders by 4 p.m. Friday, but the bankrupt retailer can still work with any bidder to "cure any deficiencies" in a bid that is not initially qualified up an auction that's been set for Jan. 14.

A lawyer who represents two Sears creditors, David H. Wander of Davidoff Hutcher & Citron LLP, said he expected ESL to modify its initial bid. "Until the gavel goes down, anyone can change a bid," he said. "My gut is, Eddie Lampert isn't going to give his best and final offer when he first makes his bid."

Lampert has his own backup plan if his going-concern bid is rejected. ESL says it wants to buy some of the remaining pieces, including selected real estate for $1.8 billion and Sears intellectual property, such as the brand name. Much of that plan would also be funded by forgiving some of the debt he holds.

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Sears judgment day arrives for Lampert's last-ditch rescue
By Crain's Chicago Business
January 4, 2019

Two bids from breakup firms have been submitted, and if either one tops Lampert, Sears could turn out to be worth more dead than alive for its creditors.

Eddie Lampert has filled in the blanks on his own $4.4 billion rescue bid for Sears, but a couple of key numbers were still missing less than a day before a key court deadline: How much did the liquidators offer?

Two bids from breakup firms have been submitted, and if either one tops Lampert, Sears Holdings Corp. could turn out to be worth more dead than alive for its creditors. Those numbers hadn't been publicly announced as of late Thursday.

Lampert's ESL Investments is offering to keep the bankrupt chain in business and up to 50,000 people employed. But it's possible his plan won't be deemed solid enough to qualify, all but assuring that the company will be shut down and sold off in pieces. The deadline for Sears to tell bidders if they're still in the running is 4 p.m. New York time.

"The plan does preserve thousands of jobs; I'm sure that provision is in there to sugar-coat the deal and make it appealing," said Murillo Campello, finance professor at Cornell University's Johnson College of Business. But it's just delaying Sears' inevitable demise, Campello said. "If it goes through liquidation, the unsecured creditors are likely to get more than if they go with Eddie Lampert's plan."

Assuming more than one bidder makes the cut, an auction is scheduled for Jan. 14. After that, Sears will declare a winner and then ask the bankruptcy judge to ratify the decision. No sale to Lampert or liquidation can take place without the judge's approval. Lampert has been trying to shape the debate by emphasizing the potential for massive job losses.

The consequences aren't lost on some lenders, who are wary of being blamed for the collapse of a big, iconic employer the way their peers were in last year's dismantling of Toys "R" Us Inc.

"Our going-concern bid provides the best path forward for the company, the best option to save tens of thousands of jobs and is superior for all of Sears' stakeholders to the alternative of a complete liquidation," according to an emailed statement from ESL.

One of the liquidating bids came from Tiger Capital Group LLC and Great American Group LLC, and another came from Gordon Brothers Retail Partners LLC and a unit of Hilco Global, people with knowledge of the bids said. A Great American representative confirmed its joint bid and declined to elaborate on the details. Sears and Gordon Brothers declined to comment, while Tiger Capital and Hilco had no immediate comment.

LAMPERT'S TERMS

Pitted against them is Lampert's last-ditch rescue proposal, a complex mix that includes loans funded by three major banks and a promise by Lampert to forgive $1.3 billion of debt that he holds in return for ownership. The complete terms were outlined in a Wednesday regulatory filing by Lampert's ESL, which ranks as the biggest creditor and shareholder.

The filing left some doubt about how solid Lampert's financing might be, stating that commitments received from lenders came with conditions, and "there can be no assurance that the funds referred to therein will actually be made available."

ESL explained in its filing that the debt commitments include certain "unusual" conditions that aren't typical for acquisitions, including a $175 million real estate secured loan that must be funded at closing. While ESL has committed to funding half the sum, it still needs lenders to agree on funding the other half.

"We intend to work expeditiously with the lenders to satisfy these conditions as soon as possible," ESL said in the filing. "We currently expect that other lenders will provide the balance of the commitment in the near term."

Lampert's credit bid and his demand for legal protection could also be sticking points, according to a new report from Bloomberg Intelligence litigation analyst Negisa Balluku. Unsecured creditors are challenging the validity of his liens, and they're claiming ESL and Lampert unfairly profited from bailout transactions leading up to the bankruptcy. ESL says those deals were valid and show consistent support for turning Sears around.

If his plan is rejected and Sears is broken up, Lampert is interested in buying some of the pieces, including selected real estate for $1.8 billion and Sears intellectual property, such as the brand name. He'd pay for the latter by forgiving $150 million of debt.

"When enterprise value exceeds liquidation value, Chapter 11 favors redeployment of assets as part of a going concern," said Vincent Indelicato of restructuring law firm Proskauer Rose. "That does not mean the parties will necessarily agree a going-concern bid presents the best possible outcome for the estate."

Still, if competing bids pay the senior secured lenders about the same amount, a judge can give weight to how unsecured creditors and employees will fare, and favor a going concern offer over liquidation, said Lawrence McMichael, a bankruptcy attorney at Dilworth Paxson in Philadelphia. Sears is so big and has been around for so long that a complete liquidation is unlikely, he said.

"There is a lot of psychological momentum to keeping it alive," McMichael said. "It may be a retailer of yesteryear, but it's still right up there. I find it hard to believe the lawyers in that case can't find a way to keep that brand alive."

This might forestall total liquidation for a few years at most, said Noel Hebert, a credit analyst who covers Sears for Bloomberg Intelligence.

"Even if there's a surviving entity here, you're in Chapter 22 within two years, maybe three," said Hebert, referring to companies that wind up returning to Chapter 11 bankruptcy. "Their model is too far gone at this point to resuscitate."

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Sears believes Eddie Lampert's bid to save the company is short. Without a deal, company could liquidate
By Lauren Hirsch
CNBC
January 4, 2019

Sears' advisors are testing just how much Chairman Eddie Lampert wants to keep the retailer alive.

Lampert has put forward a $4.4 billion bid to save Sears and 50,000 jobs by buying it out of bankruptcy through his hedge fund ESL Investments. His offer, though, which is largely funded with outside sources of capital, is facing tough scrutiny from Sears advisors, people familiar with the situation tell CNBC. If the two are unable to find a resolution, it could force Sears to liquidate.

The 125-year-old retailer, which also owns Kmart, filed for bankruptcy in October. At the time, it employed 68,000 workers.

Sears advisors' have until 4:00 p.m. ET on Friday to decide whether ESL's bid is viable. The company and ESL met earlier this week to discuss its bid, without agreeing to a compromise.

The offer has raised a number of flags, the people said. It is short of covering the fees and vendor payment it owes, making it "administratively insolvent."

A continuing issue is the $1.8 billion that Lampert put toward his offer by forgiving debt owed to ESL through a so-called credit bid. The restructuring committee advising Sears is not confident the bankruptcy judge will allow Lampert to use a credit bid without addressing a pending investigation about Sears transactions under Lampert's ownership, the people said.

Sears' unsecured creditors have said there may be claims against Sears for those deals, which include Sears' spinoff of Lands' End and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears' properties.

ESL has stressed that all transactions it did with Sears during Lampert's tenure were approved by Sears' board.

As with all bankruptcy negotiations, it remains possible either side will make concessions to end the disagreement. The two parties therefore could come to a resolution to divert liquidation.

Lampert has in his corner several powerful bargaining cards. His offer is the singular guarantee of the employment of roughly 50,000 jobs and preservation an American icon. Keeping Sears alive may be the only way to ensure its other businesses, like Sears Home Services, can continue on as well. ESL has argued that its offer, therefore, can provide Sears' creditors with the most value.

ESL has pushed for Sears to keep its bid in the ring until at least Jan. 14, when it could compare it against other offers for its various businesses, one of the people said. Sears is meeting with the bankruptcy judge Friday to discuss its decision, another person said.

But if Sears demands more cash from ESL, it will likely face opposition from Lampert.

Lampert had, over the course of several years, poured billions of dollars into Sears through ESL. He was driven by a belief in his ability to turn the company around, according to people familiar with his thinking. Lampert believed he could save Sears - which hasn't turned a profit since 2010 - by converting shoppers from its loyalty program, Shop Your Way.

But even Sears' biggest supporter has his limit. As the number of assets to back ESL's loans dwindled, so did Lampert's appetite to invest his own money in the company. Sears was forced to file for bankruptcy in October when it met a $134 million payment it could not pay. In a break from past tradition, Lampert didn't swoop in through ESL that time to help Sears with the funds.

Watching Sears fall apart has been painful for Lampert, according to people familiar with his thinking. They say pride and a desire to save jobs have driven his push to resurrect it.

Meeting of liquidators

Sears is also holding a meeting on Friday for the liquidators who would carry out the process of breaking the company apart, should it go that route, the people said. Should Sears pivot to liquidation, the process would likely be swift. Sears will look to immediately shed the products currently lining its shelves. In February, it would begin selling its assets like real estate and Sears Home services.

In Sears' conversations with liquidators, it has focused on a process that would give the company a cut of what liquidators sell, rather than a fixed payment, one of the people said. Such a payment structure carries more risk, but could also provide more upside to Sears, implying the company may be worried about having sufficient funds to cover its expenses.

It could not be immediately determined the scope of the administrative fees Sears expects it will owe.

Sears' bankruptcy lawyers, Weil, Gotshal & Manges, plan to charge Sears their customary hourly rates of $1,075 to $1,600 for work done by its partners and counsel, according to documents filed with the bankruptcy court.

In December, the U.S. Trustee's office, a bankruptcy watchdog, objected to Sears' hiring of intellectual property law firm McAndrews, Held & Malloy. It said the structure of its payment gave McAndrews an unfair protection to shield it, should the company not have enough cash to pay its administrative claims.

ESL and Sears both declined to comment.

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REITs with Sears exposure jump as ESL puts forth alternative proposal
By Liz Kiesche
Seeking Alpha
January 2, 2019

REITs with exposure to Sears Holdings jump after the hedge fund run by the retailer's chairman says it's interested in buying Sears's real estate for $1.8B if its offer to buy the company as a going concern fails.

Eddie Lampert's ESL says it believes its proposal to buy Sears as a going concern will provide the best outcome for creditors and other stakeholders, but puts forth the alternative proposal in case its first offer isn't considered a "qualifying bid".

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