The man who broke Sears now wants to fix it

You’d think the average vulture capitalist, upon picking a company’s carcass clean, would fly off. But not Eddie Lampert.

The hedge fund king’s name is well known for the way he ran Sears into Chapter 11. But now that bankruptcy proceedings are underway, Lampert’s trying to rescue the company from total liquidation. As of Wednesday, he was offering $5 billion to buy out the other creditors and keep about 425 stores open — along with around 50,000 jobs.

It may not work. Lampert’s fighting with Sears’ other creditors, who would mostly like to just sell off the company’s assets for spare parts and call it a day. The whole thing will likely be determined by an auction on Jan. 14, and then a court hearing scheduled for Jan. 31.

But the fact is, Lampert’s offer is the only one that would keep Sears running in anything like its current form. Having destroyed the company, Lampert is now trying to rebuild it.

Just what on Earth is going on with this guy?

Perhaps Lampert is merely trying to squeeze a bit more blood from the stone. It’s likely that very little if any of that $5 billion will come out of the hedge fund magnate’s own pocket. The money will probably come from loans extended by some major banks. In other words: This could just be a rerun of the leveraged buyout strategy that gutted Sears in the first place.

Because of the weird way these operations work, Lampert and ESL Investments not only ran the company, they also served as one of its primary creditors. They made a ton of money off interest payments and fees. (That’s largely why Lampert now has such a big role in the bankruptcy process he arguably drove Sears into — bankruptcy proceedings tend to prioritize selling off assets to make creditors as whole as possible.) While he was in charge, Lampert also had Sears sell off a lot of its brick-and-mortar properties to Seritage Growth Properties, a real estate company for which Lampert is the chairman. Sears went from owning its own shops to paying Lampert and company money to stay in them.

At the same time, Lampert’s stock in the company — around a third of all its shares — is now pretty much worthless. In some ways, he’s lost money on this deal, and in other ways he’s made money. He’s still worth about $1.1 billion, so he’s doing fine, but he was worth over four times that in the early 2000s. Buying out Sears one more time may be an effort to add a bit more to the latter half of the ledger.

An even more cynical possibility is that Lampert is trying to protect himself from being sued over how he ran the company. “By reacquiring the company, he short-circuits any attempt by other potential suitors to get inside the Sears books and find out what kind of things may have actually been going on,” …read more

Source:: The Week – Business


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