Firm Bids for Rest of Sears Canada

Sears Holdings Corp. on Monday offered $718.5 million to buy the stock of Sears Canada Inc. it did not already own, surprising analysts who expected the U.S. retailer to sell its 53.8% stake.

Shares of Sears Canada rose above the offer price Monday, suggesting that investors were hoping for a sweeter deal. Speculation has long centered on a transaction that would combine Sears Canada with Canadian retail icon Hudson’s Bay Co., which recently rejected a takeover bid from its largest shareholder.

Sears Holdings, which owns Sears and Kmart stores, said its offer represented an 8.7% premium over Friday’s closing share price. The offer of 16.86 Canadian dollars ($14.51) a share in cash would be after the 18.64 Canadian dollars ($16.05) a share in dividends that were announced Friday after the sale of Sears Canada’s credit card business.

Including the dividend, the offer price was 35.50 Canadian dollars a share, while Sears Canada shares were trading at 36.35 Canadian dollars.

“There is likely more to this transaction than meets the eye,” Credit Suisse First Boston analyst Gary Balter wrote in a note to clients.

The reasons Sears might want full control of its Canadian affiliate include unlocking real estate value, fending off another bid or gaining some tax benefit from the deal, Balter said.

A Sears Holdings spokesman said the company did not comment on speculation.

Sears Canada said its directors would meet soon to form an independent committee to review the offer.

The purchase would end a partnership that dates to 1952, when Sears, Roebuck & Co. agreed to a 50-50 deal with Canadian retailer Robert Simpson. The first Simpsons-Sears store opened in Stratford in the Canadian province of Ontario in 1953.

Sears took a majority stake in 1983 and changed the name to Sears Canada a year later.

With Edward S. Lampert as chairman, Sears Holdings has built a cash pile that stood at more than $2 billion as of July 30, the end of its fiscal second quarter. The retailer is expected to issue third-quarter results today.

Wall Street has been awaiting word on what Lampert intends to do with the cash. He helped fund Kmart’s emergence from bankruptcy protection in 2003 and orchestrated the purchase of Sears, which was completed in March.