Judge OKs Sears bankruptcy sale to ex-CEO

WHITE PLAINS, N.Y. – A federal judge on Thursday approved a last-minute deal to save Sears Holdings in shrunken form, giving the death-defying retailer a second chance at life.

Judge Robert Drain authorized a deal to sell the major remaining assets of Sears to its chairman, largest shareholder and former CEO Eddie Lampert’s hedge fund, ESL Investments.

As sales cratered over the past roughly 15 years, Sears has closed more than 3,500 stores and cut about 250,000 jobs, leading to the company’s Chapter 11 bankruptcy filing in October. Without approval of the sale to ESL, Sears would have almost certainly liquidated altogether.

Instead, about 425 stores and 45,000 employees will be transferred to ESL.

“The execution risk for this transaction, when one considers the alternative … is reasonable to take,” Drain said.

Drain acknowledged that Lampert, who has been fiercely criticized for his role in the downfall of Sears, had been compared during the case to a mix of

the American railroad baron Jay Gould and bumbling fictitious character Barney Fife.

“During the course of this case, Mr. Lampert in particular has been subject to substantial verbal abuse,” Drain said. “He has the opportunity now not to be a cartoon character and take action that in fact would be of great meaning” to the company’s employees, vendors and shoppers.

Although the company will survive, store closures are not expected to stop. While Lampert’s ESL will obtain ownership of the company’s 425 remaining locations, ESL President Kunal Kamlani testified Wednesday that about 156 are not performing well.

Greg Portell, partner and retail adviser at consultancy A.T. Kearney, said the company probably has about 200 stores that can be successful.

“I would advise them to get smaller,” Portell said. “Get smaller and create a foundation from which you can grow, as opposed to a foundation which erodes.”

Lampert, who relinquished the CEO role when the company filed for bankruptcy, was the company’s largest shareholder and creditor at the time of the bankruptcy. That means he had the most to lose and the most to gain as the company faced a do-or-die scenario.

A group of unsecured creditors argued the sale unfairly favors Lampert. But Drain wanted to preserve jobs if at all possible, according to court testimony.

“We intend for the new company to operate as many Sears and Kmart stores as reasonably possible, including new smaller stores that emphasize our stronger capabilities. Continuing to operate a meaningful network of stores is essential to achieving our goal of returning Sears to profitability,” ESL said in a statement earlier this week.

“During the course of this case, Mr. Lampert in particular has been subject to substantial verbal abuse. He has the opportunity now not to be a cartoon character and take action that in fact would be of great meaning ... ” Judge Robert Drain

On former CEO Eddie Lampert