Sears Holdings to Go Private?

Hoffman Estates, IL—Shares of Sears Holding rose more than 9% today in early trading as speculation continues that Edward Lampert, the hedge fund manager and Sears’ chairman, may be trying to take the retailer private.

As it mounted turnaround efforts, Sears Holdings has seen its stock plummet some 56% last year as comparable store sales at its Sears and Kmart store slowed. But recent moves by Lampert, who controls 60% of the retailer’s stock and bought 4.46 million shares from his ESL hedge fund at $29.20 a share have increased speculation. In addition, Lampert also bought shares on the open market for about $12 million.

“There is a rumor that Bruce Berkowitz of Fairholme and Eddie Lampert could take Sears private,” Jon Najarian, a co-founder of online stock, options and futures brokerage TradeMonster.com told Reuters. Trading in the shares has already doubled the normal volume, and an option trading is even more elevated, analysts said.

Nonetheless, Sears spokesman Chris Brathwaite said the company had no comment on market rumors or speculation.

Easier to Restructure as Private Company?

Some retail analysts speculate that Lampert may be seeking new capital to reorganize operations.

“Restructuring is often easier taken under private hands,” said Paul Swinand, analyst at Morningstar. “Anything that gives you more flexibility is an advantage. It would make sense to be private, but they still have to improve the operating structure and costs, pension, etc., then reinvest in stores, and then get appliances to sell again.”

Sears Holdings has been hit with a series of setbacks. The company reported days after Christmas that its comparable store sales dropped 5.2% during the holiday season and that it would be closing between 100 to 200 stores. Moody’s, the rating service, also downgraded the company’s credit, and last week, CIT Group, one of the biggest factoring services, apparently refused to extend credit advances to the retailer’s suppliers.

But not all analysts are convinced about a buyout plan.

“We think the company has bigger issues that could make a ‘going private’ transaction impossible, including significant cash burn with rapidly deteriorating financial performance and reduced liquidity, particularly if the major vendors become reluctant to fund holiday 2012 shipments,” said Mary Ross Gilbert, managing director, Imperial Capital said.

While Sears was quite to dismiss the impact of CIT Group’s decision, the stock activity may be a signal to the market.

“Fairly or not, Sears’s stock price has become a proxy for the company’s health,” said Shiva Ovide, of the Wall Street Journal’s Deal Journal. “Those companies, such as CIT, that provide financing for suppliers selling to Sears and Kmart stores, they pay attention to the stock price…those lenders are getting a touch nervous about Sears, though the company has said it has plenty of liquidity to operate its business.”

 

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