Sears' CEO Eddie Lampert proposes massive deal to buy the struggling retailer's Kenmore brand, real estate, and other assets
Filed under: Finance, Business, Companies
- ESL Investments, the hedge fund led by Sears CEO Eddie Lampert, has proposed a deal to purchase Sears' Kenmore brand, its home improvement business, Parts Direct division, and some of the company's real estate.
- Lampert proposed the deal in a letter dated Friday that was addressed to Sears' board of directors.
- ESL values Sears' home improvement and parts direct businesses at $500 million collectively.
- ESL also said it would "be open to making an offer for Sears' real estate, including the assumption of $1.2 billion in debt obligations.
Sears' CEO Eddie Lampert has proposed a massive deal between the retailer and his hedge fund, ESL Investments, to raise cash for the struggling department store chain.
- ESL believes that Kenmore is an iconic brand with substantial value and Sears should aggressively pursue a divestiture of all, or a portion of, Kenmore in the near term. If Sears believes it would be helpful, ESL would be prepared to submit a proposal for such a transaction and believes it would be able to close such a transaction within 90 days.
- ESL is pleased to submit a non-binding indication of interest to acquire SHIP and Parts Direct on the terms set forth below.
- Edward S. Lampert and Kunal S. Kamlani will not participate on behalf of Sears (as officer or director) in any discussions, deliberations, negotiations or decisions with respect to a potential transaction in which ESL participates as a buyer, except to the extent specifically requested by the committee referred to below.
- ESL will not participate in any such transaction as a buyer unless such transaction is both (i) recommended by the related party transaction committee (or another committee of independent directors) of the Sears Board of Directors, which is fully empowered to consider such transaction, and (ii) approved by the holders of a majority of the shares of Sears held by disinterested stockholders.
- ESL would accept that any transaction in which ESL participates as a buyer would be subject to a "go shop" process on reasonable terms.
- Valuation: We are interested in acquiring 100% of the equity of SHIP and Parts Direct based on an enterprise value of $500 million. The purchase price would be paid in cash and SHIP and Parts Direct would be acquired on a debt-free and cash-free basis with normalized levels of working capital.
- Other Agreements: We would expect that Sears will enter into certain interim and long-term agreements with SHIP and Parts Direct to enable the continued operation of those businesses as they operate today. These agreements would include transition services agreements with Sears for a period of time, a brand licensing agreement for SHIP and Parts Direct and other customary ancillary documents for a transaction of this type. Our proposal is also subject to receiving the required consents to assign the supplier agreements to the buyer from the suppliers of each of SHIP and Parts Direct.
- Financing: The cash consideration for the transaction would be financed with equity contributions from ESL and third party debt financing. At the appropriate time, we would also be open to discussing with you the possibility of partnering with third parties who might be interested in contributing equity financing. We do not anticipate any financing condition, since we plan to have our financing fully committed at the time we sign a definitive agreement.
- Exchange and Tender Offers: The transaction would be undertaken in connection with (i) an exchange offer with respect to 50% of approximately $600 million in outstanding 2nd lien indebtedness not secured by real estate for equity in Sears of equal value, and (ii) a tender offer for 100% of Sears' approximately $900 million in outstanding unsecured indebtedness at a discount to par reflective of the current trading prices or, alternatively, for Sears equity. ESL believes that the exchange offer and the tender offer would be beneficial to the debt holders, by providing liquidity, to Sears, by reducing its debt obligations, and to equity holders, by reducing risk and giving Sears time to pursue value maximizing strategies. Assuming the proceeds from the contemplated divestitures is sufficient to allow Sears to substantially reduce its overall leverage, ESL would consider participating in such exchange offer and tender offer.
- Timing and Advisors: We are prepared to move as quickly as possible to complete customary due diligence for a transaction of this nature and enter into definitive agreements. We believe that an expedited process is in the best interest of all parties involved. We have retained Moelis & Company as financial advisor and Cleary Gottlieb Steen& Hamilton LLP as legal counsel. Please feel free to reach out to any of the below regarding this Proposal.
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