Sears Holdings Corp (OTCMKTS: SHLDQ) recently announced it would be shuttering 80 stores by March of this year. For traders dabbling in the bankrupt retailer fate, be warned: risk is high. That said, Eddie Lampert – who has been around for a long time as the largest shareholder – has some options to save the retailer.
First, he can employ a $4.4 billion plant that would save 425 locations. The second plan would save 250 locations. The primary bid would also save all of Sears’ business units, according to an outline of the plan filed with the Securities and Exchange Commission on Wednesday. Lampert’s smaller bid would buy a few other pieces of Sears. The rest of the company would likely be liquidated. According to USA Today, a committee organized to represent the retailer’s unsecured creditors in court accused Lampert and his hedge fund ESL Investments of potentially structuring deals to gain an unfair edge as the company declined. They “may have exercised undue influence to siphon value away from the Company on favorable terms,” the creditor’s group said in a court filing. The group also said Lampert may have leveraged his “insider status to obtain an ever-increasing percentage” of Sears debt, allowing him to “obtain beneficial positions” in the retailer’s Chapter 11 bankruptcy.
Sears Holdings Corp (OTCMKTS: SHLDQ) and whatever its fate may be – and most feel that it is inevitable – will benefit Lampert if he can control certain assets from the inside.
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Lampert will put in up to $228 million for new equity and make a secured loan of $87.5 million to his new company, Transform Holding LLC, but these are not additional payments to Sears Holdings under his bid. Transform is a completely different company than Sears Holdings, and SHLDQ shareholders will not be shareholders of this new company. (SHLDQ shareholders could get some type of new non-voting security if they are allowed to participate in offer to buy $100 million of securities for the release.)
The culture at SHLDQ was never one to be confident in. Lampert notoriously belittled subordinates and while Amazon came swooping in to disrupt the marketplace, he did little to help the company’s cause.S
Corp (OTCMKTS: SHLDQ) is all but dead and investors who venture forward with the stock are playing a risky game of chicken as litigation and courts will decide what happens here. Day traders should be quick and agile.
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Disclosure: we hold no position in $KSHB, either long or short, and we have not been compensated for this article