Sears’ spinoff raises end-game questions

Sears Holdings Corp.’s announcement Thursday that it will spin off a minority stake in Sears Canada Inc. could be the first indication of more widespread selloffs, including the much-rumored sale or spin-off of the preppy Lands’ End clothing brand — all because Sears Chairman Edward S. Lampert faces important deadlines.

A five-year lockup period expires this summer for clients of Lampert’s hedge fund, ESL Investments, meaning that investors weary of Sears’ lagging performance and merry-go-round executive turnover could jump ship and cause Sears’ stock price to plummet, experts say.

On Thursday, Sears returned to a first-quarter profit, amid asset sales and double-digit percentage gains in clothing and shoe sales from a year ago. The Hoffman Estates-based company, which runs Sears, Kmart and Lands’ End, earned $189 million, or $1.78 per share, for the period ended April 28. It lost $170 million, or $1.58 per share, a year ago. Sears’ stock on Thursday increased 3 percent, to $52.42.

An article in Institutional Investor magazine quotes people familiar with the situation as saying Lampert is focused on giving these investors a rich return, which would be based on Sears’ stock price. Standard & Poor’s has concluded that if the Hoffman Estates-based retailer cannot turn around its business by 2013 or make “substantial asset sales,” it will face liquidity issues.

Yet one of ESL’S biggest investors, Fairholme Capital Management founder Bruce Berkowitz, has repeatedly supported Lampert, saying in a shareholders’ letter and in website video he believes Lampert could mimic Warren Buffett and turn Sears into a powerful institution after divesting and selling attractive assets.