ESL Bid Fails

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Sears Prepares for Possible Liquidation as ESL Bid Fails

Eliza Ronalds-Hannon and Lauren Coleman-Lochner

BloombergJanuary 5, 2019, 8:36 PM PST

Sears Prepares for Possible Liquidation as ESL Bid Fails

(Bloomberg) -- Sears Holdings Corp. is preparing to potentially wind down the iconic retailer after Chairman Eddie Lampert’s bid to buy several hundred stores out of bankruptcy fell short of bankers’ qualifications, according to people with knowledge of the matter.

The retailer started laying the groundwork for a liquidation after a series of meetings Friday in which its advisers weighed the merits of a $4.4 billion bid by Lampert’s hedge fund to buy Sears as a going concern, said the people, who asked not to be identified because the discussions are private.

While Lampert’s ESL Investments has failed to convince the bankers of the viability of its bid, it could still make last-minute improvements before a status hearing on Tuesday. Lampert also has outlined a back-up plan in which ESL would pursue the purchase of some of Sears’s parts, including real estate and intellectual property, such as its brand.

Spokesmen for Sears and ESL declined to comment, as did a representative for Lazard, which is advising Sears.

Shortcomings

The retailer, which includes its namesake department-stores and the Kmart chain, entered Chapter 11 protection in October with the hope that it could emerge from bankruptcy with less debt and a smaller group of more profitable stores. The bid Lampert submitted in late December intended to keep 425 stores open, while preserving up to 50,000 jobs.

But as representatives for the company -- along with creditors and other parties -- met in New York on Friday to assess the merits of the bid, they found a number of shortcomings, people with knowledge of the discussions said.

Gaps remained in some of the financing for the proposal, and the plan wouldn’t have provided enough cash to cover costs incurred in the bankruptcy, the people said; it also undervalued inventory and other assets relative to what liquidators were promising to pay.

Another key sticking point: much of Lampert’s bid rested on him getting ownership of the reorganized business in exchange for the forgiveness of $1.3 billion of debt he holds. But the validity of those very claims -- racked up in a series of spinoffs, refinancings and other transactions -- has already been challenged by a group of creditors. The ESL plan didn’t include a cash backstop for that part of the bid.

ESL has said its liens are valid and came after the firm extended more than $2.4 billion of secured financing to keep Sears afloat.

Lampert’s bid included a secondary proposal were the going-concern offer to fall through. It included buying selected real estate for $1.8 billion and Sears intellectual property, such as the brand name. Much of that plan would also be funded by forgiving some of the debt he holds.

--With assistance from Nabila Ahmed.

To contact the reporters on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net;Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Shannon D. Harrington, Stanley James

For more articles like this, please visit us at bloomberg.com

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