CEO mulls last-ditch bid to save Sears
TORONTO Sears Canada’s executive chairman Brandon Stranzl is trying to keep his bid for the company alive even as the retailer, its board committee and its financial advisers are poised to close the business down.
“No executable going concern transaction currently exists,” says an affidavit filed late Tuesday from Mark Caiger, managing director of mergers and acquisitions at BMO Capital Markets, Sears’s financial adviser in its court-approved restructuring and sale process.
“However, I understand that Mr. Stranzl continues to have communications with certain stakeholders regarding a potential going concern transaction.”
Sears, which filed for bankruptcy protection in June after its sales had been falling for more than a decade, is seeking court approval Friday to close its 130 stores across Canada and lay off 12,000 staff.
That announcement came on Tuesday, a few days after Sears Canada’s debtor-in-possession (DIP) lenders had asked for court approval to begin liquidating the company as soon as Oct. 19.
Still, Stranzl was in ongoing talks Wednesday with lawyers for pensioners, employees and certain landlords, according to sources, aiming to keep 65 to 70 stores open and 8,000 employees on the job.
“It’s a long shot,” said a source familiar with the talks.
Lawyer Andrew Hatnay of Koskie Minsky, counsel for Sears Canada retirees, confirmed Wednesday that “discussions (with Stranzl) are still underway for a going concern outcome,” though he could offer no further comment.
Stranzl, reportedly backed by Blackstone Group LP and hedge fund manager Vadim Perelman, founder of L.A.-based Baker Street Capital, rejigged his recent bid to exclude 11 stores that Sears gained court approval to sell last week.
According to court documents, Stranzl made the revised bid on Oct. 3 that was reviewed by BMO, Sears, a special committee of the retailer’s board, DIP lenders and the court-approved monitor.
Those parties are in favour of selling the company’s remaining assets, sources say, because the liquidation proposal offers a higher recovery rate to creditors — the chief concern of many stakeholders in a restructuring process — than Stranzl’s revised going concern bid.
There is also the issue of time: the original deadline for bidders was Aug. 31, and Sears’s DIP lenders had been issued $2.7 million in default payments as of last week because of missed deadlines in the court-approved restructuring process. Sears lenders had said they want to initiate liquidation to capitalize on the busiest selling season.
Still, there is a sliver of a chance that Stranzl could come through with another going concern bid at the 11th hour: Sears Canada, with the approval of the monitor and the court, can technically cancel the liquidation plan up to one day before storewide close-out sales are set to begin in order to pursue a going concern transaction, according to court documents.
Any going concern bid would require approval from all of the advisory parties acting on behalf of Sears who have already signed off on pursuing a court-approved liquidation — including Sears’s special board committee, BMO, and its court monitor FTI Consulting.
If Sears and the court accepted a last-minute going concern bid, the retailer would owe its chosen liquidators — a joint venture comprised of Gordon Brothers Canada ULC, Merchant Retail Solutions ULC, Tiger Capital Group, LLC and GA Retail Canada ULC — a $2.5-million break fee and expense reimbursements of up to $2.05 million.
“Sears have left themselves open because they don’t want to completely shut that door, but the monitor’s task is to get the best recovery deal for creditors,” said Bruce Winder, partner in Torontobased Retail Advisors Network.
“I would think the likelihood (of Stranzl succeeding) is very low. The employees are stakeholders, and this would be good for the employees. But most people think it isn’t possible to operate Sears as a going concern anymore because the brand has not been invested in for a long time and is past the point of no return.”
Stranzl was not able to comment on Wednesday.