Sears Deal Faces Obstacles

A deal that would save Sears is facing obstacles, as the U.S. government and major mall owners are trying to block the bid from Sears’ chairman, investor and former CEO Eddie Lampert.

A few weeks ago, Lampert’s ESL Investments won a bankruptcy court auction for the retailer, prevailing over a bid from Abacus Advisors Group LLC that would have closed down the retailer’s locations, as well as sold its inventory. Lampert’s plan, however, is said to keep approximately 400 locations in operation. The bid for $5.2 billion has already secured financing, with $850 million coming from a new asset-based loan, provided by Bank of America, Citigroup and Royal Bank of Canada.

However, USA Today reported that the Pension Benefit Guaranty Corporation (PBGC) is opposing the deal, alleging that it aims to inappropriately obtain ownership of the chain’s Kenmore and DieHard brands. In addition, some mall owners, including Simon Property Group, are accusing Lampert of creating a “scheme” to “steal” the company and benefit from its decline.

PBGC said that, although Sears retirees are expected to receive their benefits in full, the agency might have to cover a larger portion of Sears’ $1.4 billion pension shortfall if Lampert buys the Kenmore and DieHard brands.

Lampert is “intent on owning the Kenmore and DieHard trademarks, and using the bankruptcy process to obtain them,” the PBGC stated in a court filing.

In the meantime, Judge Robert Drain will hear arguments at a hearing on Monday (Feb. 4) in New York, and decide on the acceptability of Lampert’s offer. However, the PBGC’s opposition to the deal increases the chances that Drain will reject ESL’s offer. If a deal is not struck, liquidation is almost a sure thing.

Sears — which hasn’t turned a profit since 2010 — started in the 1880s as a mail order catalog, and was once the biggest department store chain in the country. Yet, it has failed to compete in recent years with competitors. Sears had 68,000 workers and 687 locations at the time of its Chapter 11 bankruptcy filing in October.