We have seen a lot of foolishness in our over 20 plus years in the markets, but the on-going drama with Sears Holdings Corp (OTCMKTS:SHLDQ) takes the cake. The stock is being pumped on the back of the belief that the guy that drove Sears into bankruptcy is going to miraculously make everyone rich. If anyone buys into this, we have a few bridges to sell if they’re interested.
Lampert Press Release
A lot of the confusion surrounding Sears stems from a press release ESL Investments released on February 11. The press release stated:
BAY HARBOR ISLANDS, Fla.–(BUSINESS WIRE)–ESL Investments, Inc. (“ESL”) today announced that its affiliate, Transform Holdco LLC, has completed its acquisition of substantially all of the go-forward retail footprint and other assets and component businesses of Sears Holdings Corporation on a going-concern basis for a total consideration of approximately $5.2 billion.
The new Sears (the “Company”) will comprise 223 Sears and 202 Kmart stores, along with prominent brands and operating businesses, including Kenmore, DieHard, Craftsman, Sears Home Services, Sears Auto Centers and Innovel.
Edward S. Lampert, CEO of ESL, said, “The best possible outcome has now been realized for all stakeholders, including Sears’ many associates, Shop Your Way members, vendors, and other partners. 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.”
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, execute go-forward initiatives, including investments in new, smaller stores to expand the Company’s reach in the hardline category, pursue renewed marketing efforts, foster new partnerships that unlock value and invest in the Company’s unique services and delivery offerings. The new Sears has a plan to be EBITDA positive in fiscal 2019.
Transform Holdco will ensure a seamless transition, with no disruption to the member and customer experience and continuation of Sears’ member programs, warranties and protection agreements. Vendors and suppliers will continue to be paid in the ordinary course for all goods and services under agreed upon terms.
The new Sears will be led by the management team that constituted the Office of the Chief Executive of Sears Holdings, consisting of Robert A. Riecker, Chief Financial Officer, Leena Munjal, Chief Digital Officer, and Greg Ladley, President, Softlines. The Company intends to conduct a search for a Chief Executive Officer with a record of success in managing platform businesses and effectuating large-scale dynamic transformations.
Problems with the Press Release
What novice investors are failing to realize is that ESL just bought the assets of Sears Holdings. It did not buy the common shares or the public vehicle. Here are the facts from yesterday’s Wall Street Journal.
- The restructured company, which doesn’t yet have a new corporate name, will be composed of 223 Sears stores and 202 Kmart locations, as well as the Kenmore and DieHard brands.
- The Sears chairman said he hoped to win back suppliers now that the company was in better financial health. “We have a clean balance sheet,” he said, referring to the roughly $4 billion of debt and pension obligations that were eliminated through the bankruptcy process, including $1.3 billion that was owed to Mr. Lampert’s hedge fund.
- The restructured company is controlled by Mr. Lampert, but he doesn’t want Sears to stay a private company indefinitely.
- “Being private has certain advantages of being able to do things that public investors wouldn’t endorse,” he said, adding that must be balanced against the opportunity to raise capital as a public company.
- “If I am a betting person, which I am, I would say at some point we would be public again,” Mr. Lampert said.
Currently trading with a market cap of $185 million, SHLDQ is nothing more than a shell. Traders have been bidding the stock up thinking that they own a piece of what Eddie Lampert bought. That’s not the case. Fast Eddie has outsmarted and pulled the wool over everyone again. It’s time to wake up and not get left holding the bag. Good luck to all!
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Disclosure: We have no position in SHLDQ (we are not short and do not have a bone in this fight so don’t accuse us of being short) and have not been compensated for this article.
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