Economy Sears in Chapter-11 Bankruptcy Protection, Lampert and Mnuchin Sued For Alleged "Theft" of Billions

[Arkain2K]

There was a time when Sears was THE place to go for all your appliances and hardware needs. Oh how the mighty has fallen.

Lampert has pumped hundred of millions of his own money in this dying beast to keep it breathing (all while spinning off the best parts of the company's assets), but looks like this long and agonizing dying pain is about to come to end.

Sears' bankruptcy appears imminent
By Nathaniel Meyersohn and Chris Isidore, CNN Business | October 12, 2018

Sears has three days to come up with $134 million.

Sears Holdings (SHLD), the parent company of Sears and Kmart, faces a Monday deadline to pay that much in debt.

The most recent filing from Sears showed it had only $193 million in cash on hand as of August 4, the end of its last fiscal quarter. The company also has $269 million available to it from lenders, according to figures it released on September 13.

Having so little cash available would make it very difficult for Sears to pay back $134 million in debt due on Monday. Plus, Sears also has to pay its current vendors and employees and stock up inventory before the holidays.

All signs point to a bankruptcy filing in the next few days. Sears' stock has fallen more than 50% in the last five days to around 35 cents a share.

Three companies that sell items at Sears told Reuters this week that Sears had missed payments to them over the past few weeks. One of Sears' major shareholders recently dumped a chunk of his stock for pennies on his original investment. The company added a new director this week who is familiar with bankruptcies and restructuring.

And reports are swirling that the company is talking to advisers and banks in preparation for a bankruptcy filing. According to the Wall Street Journal, Sears has hired M-III Partners, a boutique advisory firm specializing in seeing companies through bankruptcies and restructuring, The company is also talking to lenders about providing it with debtor-in-possession financing, CNBC reported. That kind of loan is used by companies that file for bankruptcy to fund operations during the process. Usually, funding is secured well before the final days.

Companies that file for bankruptcy typically negotiate a special kind of loan to stay in business while they go through the bankruptcy process. There are several reports that Sears is in talks for that kind of financing, but negotiations don't appear to be going well.

The company's lenders are encouraging Sears to shut down and liquidate, the Wall Street Journal reported Thursday. Sears' management has reportedly said it hopes to use Chapter 11 of the bankruptcy law to stay in business rather than Chapter 7, which leads to closing.

If Sears does file for Chapter 11, the company could try to stay in business, using the court process to shed debt and unaffordable leases. It could attempt to emerge as a profitable company. But the retail landscape is littered with brands that tried to reorganize in the bankruptcy process and liquidated their businesses instead, such as RadioShack, Toys "R" Us and Sports Authority.

Sears and Kmart merged to form Sears Holdings in 2005, when they had 3,500 US stores between them. A long series of store closings has left it with under 900 today.

In July Sears closed its last store in Chicago, once its hometown. The company recently announced another 46 store closings that will take place just before the start of the holiday shopping period.

Sears and Kmart had 89,000 employees as of February 3 of this year, according to a company filing.

https://www.cnn.com/2018/10/12/business/sears-bankruptcy/index.html

 

[Arkain2K]

Sears CEO Eddie Lampert rode the worst trade of his life all the way down
By Katherine Burton , Lauren Coleman-Lochner and Eliza Ronalds-Hannon | Oct 12, 2018

Edward Lampert, chairman of Kmart, left, with Aylwin Lewis, president of Kmart, center, and Alan Lacy, CEO of Sears at the announcement of a merger between Kmart and Sears in 2004.
​

Bit by bit, the smart money deserted Eddie Lampert.

Michael Dell, David Geffen, George Soros, the Ziff brothers — by 2012, all of them, and many more, had peeled away.

Not even Lampert’s friends could understand why the hedge fund manager, once hailed as a young Warren Buffett, clung to his spectacularly bad investment in Sears, a dying department store chain.

Granted, other hedge fund titans have blown it, such as Julian Robertson with US Airways and Bill Ackman with Herbalife. But few have ridden a disaster so publicly, over so many years, with such an iconic brand. It was hubris, many now say, and a failure to follow the investor commandment: Get out in time.

Lampert, who lost many millions as Sears Holdings Corp. shares ground down to pennies, kept throwing the company lifelines. From the moment he bought into what was then called Sears, Roebuck & Co., he also maneuvered to protect his financial interests. At times, he even made money.

He closed stores, fired employees and, in what will surely be long remembered as the most unseemly element of the saga, carved out some choice assets for himself.

Until, at last, the reckoning. After 13 years under Lampert’s stewardship, Sears finally seems to be hurtling toward bankruptcy, if not outright liquidation. And, once again, Wall Street is wondering what Eddie Lampert will salvage for himself and his $1.3-billion fund, ESL Investments Inc., whose future may now be in doubt.

“He’s been doing a lot of financial engineering, but he’s just been moving around the deck chairs on the Titanic,” said Van Conway, a restructuring expert who worked on Detroit’s bankruptcy. “It looks like he’s played almost a full deck of cards by now.”

For years, Bankruptcy Court had been accepted by most everyone except Lampert as unavoidable. He refused to give in, proposing a plug-the-holes maneuver just two weeks ago, after years of machinations that kept the basic gears going even as the company was bleeding out.

At 56, he’s still a billionaire. A Sears bankruptcy isn’t likely to change that for the chief executive and chairman.

Under the filing the company is said to be preparing, he and ESL — together they hold almost 50% of the shares — would be at the head of the line when the remnants are dispersed. As secured creditors, Lampert and the fund could get 100 cents on the dollar, along with others in the protected camp, including Wells Fargo & Co. and Citigroup Inc.

Lampert has maneuvered out of tight spots before, most famously when he persuaded four men who kidnapped him in January 2003 to let him go after holding him for 30 hours, blindfolded and handcuffed, in a motel bathroom. But saving sinking Sears required more than fast talk.

His last idea was a debt restructuring that received little or no support from other creditors, who saw it as a scheme to allow ESL to be paid for Sears’ real estate, according to a person with direct knowledge of the situation. Part of this Lampert plan was to have unsecured creditors swap their debt for equity, a fool’s trade in the view of most analysts.

There’s no question Sears has cost him, and not only in reputation: He saw about $240 million worth of stock that he personally purchased evaporate as the shares tumbled. An additional $287 million that he received in compensation has all but disappeared. ESL has lost $65 million just this year.

The hedge fund’s assets plummeted to around $1 billion from $15 billion in 2006 as the portfolio shrank from a half-dozen to the one massive crapshoot on Sears. The big-name investors exited, and so did Goldman Sachs Group Inc. clients who had come into ESL as part of a $3.5-billion capital raise in late 2007 and early 2008.

Still, as Sears’ major debt holder, with about half of the company’s $5.3-billion total, ESL saw a bit of upside, extracting more than $200 million in interest payments a year. And Lampert carved out what looked like — and in some cases might yet be — saves for himself, with spinoffs that gave him chunks of equity in new companies. One was Seritage Growth Properties, the real estate investment trust that counts Sears as its biggest tenant and of which Lampert is the largest shareholder; he created it in 2015 to hold stores that were leased back to Sears — cordoning those off from any bankruptcy proceeding. He and ESL got a majority stake in Land’s End Inc., the apparel and accessories maker he split from Sears in 2014.

The Sears Canada Inc. gamble was a fumble; that spinoff began liquidating one year ago. Lampert and ESL together had almost $300 million in that stock and both rode it to zero, though they did pocket $25 million in special dividends.

The spinoffs robbed Sears of assets when it needed them, said Mark Cohen, a former CEO of Sears Canada and frequent Lampert critic who’s an adjunct professor of retail studies at Columbia University.

“This completely unconventional way of managing a business might have been an interesting alternative operating strategy were it not for the fact that it has been a colossal failure,” Cohen said.

Over the years of propping Sears up, Lampert threw his own money into the effort, and his friends and supporters said this wasn’t only in self-interest: He wanted to keep the lights on and people employed. He and ESL were willing to lend at much lower rates than others were demanding. He had Sears pay almost $2 billion into the unfunded pension plan in the last five years.

Nothing Lampert won out of Sears’ spinoffs was the result of special treatment, said Paul Holmes, a spokesman for ESL. “As we have said previously, the Land’s End and Seritage transactions were carried out on transparent terms that delivered value to all Sears shareholders and every shareholder had the same opportunity to participate.”

The defeat of a bankruptcy filing won’t dull Lampert’s passion, according to people close to him. He’ll continue to lead his low-key billionaire life, reading, riding his racing bicycles and spending time on his 288-foot yacht. (Lampert named it the Fountainhead, after the 1943 novel by Ayn Rand, whose books glorify individualism and the pursuit of riches.)

Lampert started ESL — for Edward Scott Lampert — in 1988 after three years at Goldman. Richard Rainwater, who oversaw the Bass brothers fortune, staked him $28 million to get going.

By the time he was 43, he was a billionaire three times over. He hit home runs, the most impressive with the auto-parts retailer AutoZone and the car seller AutoNation Inc. Even with the Sears fiasco, an investor who has been with Lampert from the beginning would now still be enjoying an annualized return of about 12%.

He had what looked like another success on his hands in 2002, when he bought Kmart’s unsecured debt for about $700 million. Within two weeks, he’d orchestrated the retailer’s exit from bankruptcy and emerged as its biggest shareholder.

Kmart was throwing off cash back then, and Lampert masterminded the merger with Sears. It wasn’t immediately a disaster, but losses started piling up.

Sears rolled through four CEOs in eight years, and Lampert took over in January 2013. But he shows up at the headquarters outside Chicago only a few times a year. He prefers to beam in from his office in Florida; while he still owns a home in Connecticut he lives most of the time in a $40-million estate on Indian Creek, an island near Key Biscayne that’s home to two dozen or so of Miami’s uber wealthy.

As he cut costs to the bone, he pitted executives against one another in a battle for scarce resources in a sort of retail Hunger Games, people who worked for him said. He ruffled feathers by being a micro-manager with little interest in heeding the advice of top executives, according to one former high-ranking employee, who like others interviewed for this story asked not to be named for fear of angering Lampert.

Perhaps his biggest misstep was thinking he could power through the recession. He had the opportunity to cancel a massive number of leases on Sears stores in the aftermath of the financial crisis, according to people familiar with the company. Instead, he renewed them.

Rainwater, who died in 2015, had pulled his money out of the fund when Lampert decided to move beyond picking stocks to takeovers and buyouts, thinking the young man wasn’t ready. Part of it, Rainwater told the Wall Street Journal in 1991, was what he saw as the downside to Lampert’s exceptional drive: “He’s so obsessed with moving in the direction he wants to move that people get burned, trampled on, run into.”

Those words now seem prophetic.

http://www.latimes.com/business/la-fi-sears-eddie-lampert-20181012-story.html

 

[Bald1]

Not much of a contribution, but all Sears stores closed their doors here in Calgary last year.

 

[VivaRevolution]

Sears CEO Eddie Lampert rode the worst trade of his life all the way down
By Katherine Burton , Lauren Coleman-Lochner and Eliza Ronalds-Hannon | Oct 12, 2018

Edward Lampert, chairman of Kmart, left, with Aylwin Lewis, president of Kmart, center, and Alan Lacy, CEO of Sears at the announcement of a merger between Kmart and Sears in 2004. Kmart was throwing off cash when Lampert masterminded the deal, but losses soon started piling up.​

http://www.latimes.com/business/la-fi-sears-eddie-lampert-20181012-story.html

This right here is why I hate the executive level of corporate America. I hate to be the bearer of bad news, but our executive class that runs America are subject matter expert on analytics, and know nothing else.

This Lambert guy was an idiot at everything outside his expertise, which is bean counting. He knows how to do mergers and aquisitions, he knows how to cut costs, and he knows nothing else.

The executive class of our nation knows how to build monopolies, and how to canabalize a company. They know nothing else.

They are good at creating the appearance and speculation of growth, while actually destroying the core value of a company.

 

[ElKarlo]

Sad, I worked for sears in college 02-03. Service was good and morale was good as well. Eddie Lampart seems to have fired anyone who made shopping a good experience. Sad to see sears unwind so slowly and painfully .
Glad I cashed my stock out when kmart bought sears. Whew

 

[ElKarlo]

This right here is why I hate the executive level of corporate America. I hate to be the bearer of bad news, but our executive class that runs America are subject matter expert on analytics, and know nothing else.

This Lambert guy was an idiot at everything outside his expertise, which is bean counting. He knows how to do mergers and aquisitions, he knows how to cut costs, and he knows nothing else.

The executive class of our nation knows how to build monopolies, and how to canabalize a company. They know nothing else.

They are good at creating the appearance and speculation of growth, while actually destroying the core value of a company.

To be fair, he isn't being compared to Buffett anymore. Also his fund has lost a lot due to people wanting out.

 

[Ruprecht]

It's not just Sears, the department store retail model is dying.
Funnily enough it's their old catalogue model that is being revamped with the internet. The wheel turns.

Spoiler

 

[VivaRevolution]

It's not just Sears, the department store retail model is dying.
Funnily enough it's their old catalogue model that is being revamped with the internet. The wheel turns.

This is what blows my mind. If anyone should have understood shrinking physical footprints to stock that people want to physically touch to buy, and a order from home setup, it should have been Sears. I bet there were allot of people inside the Sears company that were screaming to move to a boxstore/online hybrid like Walmart, but the executives weren't interested in hearing that. That would increase costs and impact stock prices in the short term, and the people making that decision have no idea about online of retail anything. They worked in a totally different industry 5 years ago.

 

[bobgeese]

Owning Kmart was their first mistake.

 

[Ruprecht]

This is what blows my mind. If anyone should have understood shrinking physical footprints to stock that people want to physically touch to buy, and a order from home setup, it should have been Sears. I bet there were allot of people inside the Sears company that were screaming to move to a boxstore/online hybrid like Walmart, but the executives weren't interested in hearing that. That would increase costs and impact stock prices in the short term, and the people making that decision have no idea about online of retail anything. They worked in a totally different industry 5 years ago.

Yeah, the Ikea model still seems to be comparatively successful. Cheap food, competitive prices and exclusive brands matched with local warehousing and strong online sales, but even they are looking to downsize their retail floorspace. When it comes to changing markets the important thing is continuing to innovate (or at least adapt). Which is the opposite of most of the large, established department stores.

 

[ElKarlo]

This is what blows my mind. If anyone should have understood shrinking physical footprints to stock that people want to physically touch to buy, and a order from home setup, it should have been Sears. I bet there were allot of people inside the Sears company that were screaming to move to a boxstore/online hybrid like Walmart, but the executives weren't interested in hearing that. That would increase costs and impact stock prices in the short term, and the people making that decision have no idea about online of retail anything. They worked in a totally different industry 5 years ago.

They were going to push that in 03. With sears grand. Was supposed to be like Walmart but with at that time sears service. Sears also had a decent website at the time. They just never put anything into it after Eddie bought it

 

[Thepaintbucket]

Owning Kmart was their first mistake.

It was the other way around buddy. K mart was the one who bought Sears out.

 

[Otto!]

As a kid in late 60s and early 70s, the arrival of the Sears Christmas catalogue was a much anticipated event. My brother and I would drool over the toy pages. They used to have such a huge share of the market back then.

 

[Renard]

Sears Canada went bankrupt. I'm only surprised there are still Sears stores somewhere who are open.

 

[Liquid Smoke]

 

[bobgeese]

It was the other way around buddy. K mart was the one who bought Sears out.

Wow, Kmart has been extinct here for almost 20 years.

 

[Makani]

A lot of long-time Sears employees up here got shafted on their pensions when Sears closed up. Scumbags paid out tons of dividends and left the pension underfunded. Sad to see it happen to such a large employer, but every retailer is vulnerable to the Blockbuster effect without sufficient innovation.

 

[Bunk Moreland]

This right here is why I hate the executive level of corporate America. I hate to be the bearer of bad news, but our executive class that runs America are subject matter expert on analytics, and know nothing else.

This Lambert guy was an idiot at everything outside his expertise, which is bean counting. He knows how to do mergers and aquisitions, he knows how to cut costs, and he knows nothing else.

The executive class of our nation knows how to build monopolies, and how to canabalize a company. They know nothing else.

They are good at creating the appearance and speculation of growth, while actually destroying the core value of a company.

So the dude was playing the extra long game? For fourteen years long?

 

[RockstarChris]

great, i will go in and buy all of their store fixtures then sell them on craigslist for a killing

 

[trac209]

My friends mom worked there,26 years. Won’t see a dime of her pension or anything. It all went to pay the executives.