Chairman Eddie Lampert’s revised plan to save Sears includes more severance for its workers, a move that could head off a debacle like the collapse of Toys R Us that left employees empty-handed and lenders being blamed and shamed.
It’s still unknown if the plan from Lampert’s ESL Investments Inc. will be accepted and whether Sears Holdings Corp. and its hundreds of stores will avoid a shutdown. But Lampert’s repeated emphasis on saving jobs and protecting workers could give him an edge in his Bankruptcy Court contest with liquidators who would close the iconic retailer.
“If you’re assessing multiple bids, and one is liquidating and getting rid of 50,000 jobs, and the other is keeping the jobs, you’re going to look to the one that saves the jobs,” said Matthew Mason, of retail advisory and restructuring firm Conway MacKenzie, who worked as in-house counsel for Kmart prior to its 2005 merger with Sears.
In his sweetened offer valued at more than $5 billion, Lampert promised to provide up to $43 million of additional severance and jobs for as many as 50,000 employees. The company “also expects to reinstate the pre-petition Sears severance program for the benefit of all eligible employees that accept their employment offer,” Lampert wrote in a letter to Lazard, the investment bank representing Sears.
“A future for Sears as a going concern is the only way to preserve tens of thousands of jobs and bring continued economic benefits to the many communities across the United States that are touched by Sears and Kmart stores,” Lampert wrote.
Bankers are concerned about damage to their reputations if they’re seen as killing those jobs by refusing to lend more money to Sears. Creditors who opted to liquidate Toys R Us Inc. became the target of protests by fired workers, scrutiny from their own investors and criticism from presidential hopefuls Elizabeth Warren and Cory Booker. Ultimately, the toy seller’s private-equity sponsors created a $20-million hardship fund for employees whose jobs disappeared.
Some of the pressure has come from pension funds that are increasingly addressing social issues such as treatment of workers. Activists have said executives and advisors of bankrupt retailers continue to profit from failing companies through bonuses and fees, even if they’re liquidating, while workers who keep the business running get no special consideration. Sears won court approval on Dec. 14 to pay bonuses worth $25.3 million for “key employees” to keep them in place.
Focusing on jobs could tip the scales in Lampert’s favor because there’s an unwritten preference in bankruptcy courts for keeping companies open and people employed if the bid is close enough to those from liquidators. Judge Robert Drain hinted as much this week.
“Obviously, this is a large company that affects a lot of people,” he said, calling Lampert’s new offer a “good development” that could enable Sears to stay open.
There are solid business reasons to focus on rank-and-file job security, Mason said. When a company files for bankruptcy, people immediately start looking for other jobs, making it harder to stage a successful turnaround. “If you keep hearing about liquidation and you’re living paycheck to paycheck, you don’t have the incentive to stick through this process,” Mason said.
A recent financial report from Sears shows that a comeback remains daunting. The retailer lost $404 million in three weeks after filing for bankruptcy on Oct. 15, followed by a $12-million loss in November.
Workers’ representatives say more has to be done to change the terms of a system that would give Sears executives bonuses after years of losses totaling billions of dollars, while workers get nothing.
“The challenges presented by the broken bankruptcy laws and weak protections for severance pay shouldn’t stop ESL Investments from doing right by Sears and Kmart employees,” said Carrie Gleason, policy director for Organization United for Respect. Her group urged the creation of the fund for Toys R Us workers who were denied severance after the company’s demise.