Sears will live on under Chairman Edward Lampert
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 bid submitted in an auction that would have kept the oncemighty 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.
In his hour-long ruling, Drain said he determined the sale “makes good business sense” and rejected the committee’s arguments that the sale process was flawed or that liquidation would result in a better and higher transaction. Throughout the lengthy proceedings, Drain appeared to keep the preservation of jobs top of mind.
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 can reinvigorate a retail chain that many consumers have fond memories of, but no current relationship with. Lampert has said he wants to invest in smaller stores and those that are profitable, with a focus on popular categories like appliances and repair services.
Retail consultant Neil Stern is skeptical that the plan will succeed, given Sears’ long history of declining sales. Lampert, he said, “has nine lives, it seems.”
“How long are these good locations going to remain good,” said Stern, senior partner at Chicago-based McMillan Doolittle. The company’s future strategy seems to be exemplified by a new smaller-format store that opened last year in Oak Brook, which focuses on merchandise such as appliances, tools and women’s sportswear.
“Other than the thingsthat-we-make-money-in store, there is nothing from a consumer standpoint to ties that all together,” he said.
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.
Attorney David Wander, who represents four creditors, including two apparel manufacturers, said the approval of Lampert’s bid is good for everyone.
“It maximizes the value of the assets while preserving the claims against ESL/Lampert,” said Wander, a partner with Davidoff Hutcher & Citron in New York.