http://fortune.com/2019/01/06/sears-prep-liquidation/
Sears Holdings Corp. is preparing a potential wind down after Chairman Eddie Lampert’s bid to buy several hundred stores out of bankruptcy fell short of bankers’ qualifications, people with knowledge of the matter said.
The iconic retailer started laying the groundwork for a liquidation after 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. If the 125-year-old retailer does die in bankruptcy -- like Toys “R” Us in 2018, and Borders Group Inc. in 2011 -- it would mark the largest fatality yet in the retail apocalypse prompted by a shift to online shopping.
Eddie Lampert
Source: Sears Holdings Corp.
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 Freres & Co., which is advising Sears.
Shortcomings
The retailer, which includes its namesake department-stores and the Kmart chain, entered Chapter 11 protection in October with $11.34 billion in debt and a warning that it risked being relegated to the “dustbin of history” with 68,000 jobs at stake.
Its filing marked the second-largest retail bankruptcy ever, according to Bloomberg Data -- just after that of real estate specialist Capmark Financial Group Inc., with $21 billion in liabilities. The third-largest, Toys “R” Us, had around $8 billion in debt. Its attempt to reorganize through bankruptcy failed.
Sears has pushed forward with the hope that it could restructure with 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.
Sticking Point
Gaps remained in some of the financing 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.
Ongoing Marketing
Sears has told real estate firm Jones Lang LaSalle Inc. to continue marketing the company’s properties and accepting open-market bids even though the deadline for those offers was Dec. 28, one of the people said.
Lampert’s bid included a secondary proposal in case the going-concern offer were 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.
Earlier in the bankruptcy, creditors questioned whether transactions involving Lampert had bilked them of $2.6 billion, setting the stage for conflict over deals with the very investor who is offering to salvage the company. Lampert’s ESL said its transactions were made in good faith and on fair terms to other stakeholders.
Who's next, JC Penny?
ETA: I have a grudge with the above article "it would mark the largest fatality yet in the retail apocalypse prompted by a shift to online shopping". The retail apocalypse, especially as it pertains to Sears, has less to do with online shopping and more to do with mismanagement and declines in the economy in general.
