Sears gets to stay in business: Bankruptcy judge OKs Eddie Lampert’s plan
A bankruptcy judge has blessed a $5.2-billion plan by Sears’ chairman and biggest shareholder to keep the iconic business going.
The approval means roughly 425 stores and 45,000 jobs will be preserved.
Eddie Lampert’s bid through an affiliate of his ESL hedge fund overcame opposition from a group of unsecured creditors, including mall owners and suppliers, that tried to block the sale and pushed hard for liquidation.
In delivering his decision Thursday, U.S. Bankruptcy Judge Robert Drain for the Southern District of New York rejected the committee’s claims that the sale process was unfair and flawed, that it shut out any other parties who could have been interested in buying the business and that Sears had more value to its creditors if it died than if it lived.
Lawyers for Sears Holdings Corp. and ESL argued that the sale offered the best deal and also preserved jobs.
Drain is expected to enter his order Friday, making it official.
Even with this reprieve, Sears’ long-term survival remains an open question. Lampert hasn’t put forth any specific reinvention plans, and the company still faces cutthroat competition from Amazon, Target and Walmart. Meanwhile, its stores look old and drab.
Lampert steered Sears Holdings Corp. into Chapter 11 bankruptcy protection in October. The company, which also owns Kmart, had 687 stores and 68,000 employees at the time of the bankruptcy filing. At its peak in 2012, its stores numbered 4,000.
Sears was hit hard during the Great Recession and outmatched in the recession’s aftermath by shifting consumer trends and strong rivals. It hasn’t had a profitable year since 2010 and has suffered 11 straight years of declining sales.
Lampert’s original plan had been rejected by a subcommittee of the Sears board. ESL sweetened the bid several times before the subcommittee gave it the OK.
A group of unsecured creditors, who rank at the bottom of the list to be paid, filed objections to the sale. They alleged falsified financial projections, excessive buybacks, and a spinoff of key brands that stripped the business of key assets.
“The tortured story of Sears reads like a Shakespearean tragedy,” the group said. “Lampert and ESL managed Sears as if it were a private portfolio company that existed solely to provide the greatest returns on their investment, recklessly disregarding the damage to Sears, its employees and its creditors.”
Lampert personally owns 31% of the Sears’ outstanding stock, and his hedge fund has an 18.5% stake, according to FactSet. He stepped down as chief executive in October after serving in that position since 2013.
Under Lampert’s watch, Sears has survived in part by spinning off stores and selling well-known brands such as Craftsman tools. He has also lent some of his own money.
Lampert has been criticized for not investing in his stores. Even Sen. Elizabeth Warren (D-Mass.), a potential presidential candidate, has attacked him and questioned his commitment to Sears workers.
“I am concerned that under your leadership, Sears may continue to struggle and employees will continue to face uncertainty and anxiety over their future employment, and ongoing risks to their benefits and economic security,” Warren wrote in a letter to Lampert made available to the Associated Press by a worker advocacy group.
One of the lawyers for Lampert’s hedge fund testified this week that the 56-year-old billionaire has been portrayed as a cross between Jay Gould, the late railroad tycoon, and Barney Fife, a bumbling fictional character from “The Andy Griffith Show.”
Drain, the bankruptcy judge, acknowledged that Lampert had been subject to “verbal abuse.”
“He is a wealthy individual and a big boy,” Drain said. “And I guess he can take it.”
But he added that Lampert “has an opportunity to not be a cartoon character.”
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