Sears Holdings Begins Rights Offering

In Reports, What's New, Industry News by Jeff Prine

Sears HoldingsHoffman Estates, IL—Sears Holdings said in a filing on Wednesday that it plans to raise $380 million by selling off the majority of its stake in Sears Canada.

The 40 million shares of Sears Canada it plans to sell could gain the troubled retailer $168 million by mid to late October, the offer expires on Nov. 7.

In the meantime, Fairholme Capital Management, one of Sears’ biggest shareholders, bought 50,000 more of Sears Holdings on Monday, a move that gives the investments firm about 24.69 million shares of Sears Holdings—23.2% of the total outstanding stock.

Although it was a relatively small transaction in the grand scheme of things, the purchase at this time when the stock has taken a dive has uplifted investors’ confidence. The move follows a series of setbacks for Sears Holdings: a wider-than-expected second quarter loss, a burn through of its cash and uncertain turnaround efforts. Not to mention rumors that Sears Holdings was having problems with its vendors getting insurance, a rumor Sears denied.

Then Fitch Ratings downgraded the Sears Holding to its Long-Term Issuer Default Rating on Sears Holdings and its various subsidiaries from CCC to CC. Fitch Ratings downgraded Sears Holdings due to a failure of turnaround efforts, expectations of EBITDA to remain materially negative, weak estimates for comparable store sales, significant cash burn, and weakening ability to capitalize on the potential liquidity sources.

Not long after Sears announced its $400 million load from ESL Investments (CEO Edward Lampert’s fund)

“Although the recent news related to Fairholme Capital has somewhat supported the investors’ deteriorating confidence, it is not enough for the investors to go long or cover their short positions on the stock,” wrote Bob Cramer, an analyst with Business Etc. “Therefore, future of Sears Holdings still appears dark owing to weak financial results, failed turnaround efforts, and other problems set to welcome Sears Holdings this holiday season.”


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