Sears to remain open after Eddie Lampert’s $5.2B bid prevails in bankruptcy auction

Sears isn’t getting liquidated out of existence — it’s just getting downsized a little.

That was the good news early Wednesday for 45,000 employees at the bankrupt retailer, as billionaire Eddie Lampert and his hedge fund ESL Investments reportedly convinced an army of lawyers, bankers and bankruptcy experts to give him one more chance to get it right with the 126-year-old retailer.

The agreement came after Lampert sweetened his offer to $5.2 billion to keep some 425 stores open — down from about 700 before it filed for bankruptcy protection, according to a Reuters report.

Lampert’s bid was losing ground until the final hour, when he threw in an additional $150 million, according to The Wall Street Journal.

After two days of intense negotiations at the law offices of Sears’ legal counsel — Weil, Gotshal & Manges — Lampert came away with the winning bid at an auction in which the only other bidder was a liquidator hired by Sears.

ESL and Sears did not respond to a request for comment and neither company publicly disclosed details about the agreement.

The deal needs approval by the White Plains, NY, bankruptcy court’s Judge Robert Drain, on Feb. 1, but it could also be challenged by Sears’ creditors, some of whom believe Sears is worth more dead than alive, according to sources close to the situation.

The company, which includes Kmart, has been losing money for more than a decade, they say, and is burning through about $125 million in cash a month right now.
When Sears and Kmart merged in 2005, together they operated 3,500 stores.

“If the unsecured creditors’ committee makes a good argument that the winning bid isn’t the highest and best offer, the court could take that under consideration,” said Ana Lucia Hurtado, distressed-debt analyst for Reorg. “The difficulty there is that the bankruptcy court tends to defer to the debtor’s business judgment.”

Those creditors are likely to object to several aspects of the deal, which reportedly includes a $1.3 billion credit bid that would allow Lampert to forgive debt that Sears owes his hedge fund.

Creditors are also likely to fight for their right to sue ESL and Lampert for transactions he did before Sears filed for bankruptcy protection in October, when he carved out some of Sears’ assets, including real estate and the apparel company Lands’ End. He previously offered to pay $35 million to be released from being sued.

“The best of all worlds would be if the winning bid doesn’t include releases,” said bankruptcy attorney David Wander of Davidoff Hutcher & Citron, adding that Sears would be saving jobs but it “wouldn’t be giving [Lampert] a pass.”

Some creditors, including apparel and jewelry vendors based in China, cheered the news that Sears would stick around a bit longer.

“My client is happy,” said Joseph Sarachek, who represents vendors who are owed $10 million worth of goods they shipped to Sears before the filing. “But they need their money now.”