The CEO of Sears Holdings Corporation – best known to the public as Sears – has a plan to save his retail chain from bankruptcy. The controversial plan will require the help of highly skilled bankruptcy attorneys to ensure it goes smoothly.
Why is the Bankruptcy Plan Controversial?
The potential controversy stems from the fact that the CEO’s plan would also hand his hedge fund a cool $1 billion.
Eddie Lampert called for this plan to ‘stop the bleeding’ by paying off certain loans – many of them owned by his hedge fund – while also swapping other debts for notes that convert to equity. This comes at a time when the price per share for Sears stock is little more than $1 per share (an 87% drop in the past year.)
Lampert’s hedge fund, ESL Investments Inc., is Sears’s biggest shareholder. Since ESL Investments owns around $2.5 billion in Sears debt, ESL could recoup more than $1 billion under its own proposed plan.
A Hard Road Ahead of Potential Bankruptcy
Sears closed 150 of its stores during last year alone. Looking further back, the company has topped losses of $11 billion since 2012. The company has not been profitable since 2010.
Sears was founded 125 years ago as a mail-order store and was one of the nation’s premier retailers for decades. However, in recent years, the business has slumped into near obscurity. In fact, many believe that Lampert’s plan is a last-ditch effort to self-benefit, and will not help the retailer in the long-run.
The Plan to Avoid Bankruptcy Mired in Controversy
Mark Cohen, the director of retail studies at Columbia Business School and former CEO of Sears Canada has reported, “Eddie Lampert is seeking permission from himself to keep Sears on life support while he continues to drain every last remaining drop of blood from its corpse. The operation is a failure, and there is no plan to turn that around.”
“Without revenue growth,” Neil Saunders, managing director of GlobalData Retail chimes in, “Sears will remain a company at risk. As usual, Sears is focusing on financial maneuvers and missing the wider point that sales remain on a downward trajectory.”
Huge Incentive Not to File for Bankruptcy
It is suspected that, if Sears ends up in bankruptcy, the process will open up Lampert to an enormous investigation. This is because he, as both the CEO and Sears’s biggest shareholder, has done hundreds of millions of dollars in transactions to the potential detriment of Sears creditors. Therefore, it is believed that Lampert will do anything possible to avoid filing for a Chapter 11 bankruptcy.
So how does Lampert propose to come up with the billions of dollars necessary for his plan to ‘stop the bleeding’ (and give to his hedge fund)? The CEO wishes to sell a total of $1.75 billion in non-real estate assets to pay down the debt. As well, he proposes to sell another $1.5 billion in real estate. Finally, he would like to sell Sears’s Kenmore appliance brand.
The decision regarding Lampert’s suggested restructuring proposal rests with the company’s independent board members. As of now, it appears the board agrees with Lampert’s plan, but they refuse to provide guarantees.