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Eddie Lampert raises offer to keep Sears open to more than $5 billion.

Byline: Katherine Doherty and Josh Saul Bloomberg

Eddie Lampert's ESL Investments is sweetening its offer to keep Sears Holdings Corp. in business, outlining a $5 billion plan to buy the retailer out of bankruptcy.

The new bid, about $600 million more than Lampert previously offered, should satisfy conditions set in U.S. bankruptcy court on Tuesday after his earlier plan was rejected, ESL said Thursday in a filing. The terms include up to $166 million to cover payments to suppliers, up to $139 million of bankruptcy-related expenses and as much as $43 million of additional employee severance. ESL said it also wants to acquire assets that weren't in the original proposal.

Sears teetered on the edge of a shutdown after ESL's initial bid was rejected over the weekend, prompting the company to begin preparations for a liquidation. But after three hours of negotiations Tuesday in a courthouse White Plains, New York, courthouse, the company agreed to give Lampert's hedge fund another shot.

ESL faced a court deadline Wednesday to improve the deal and to put up $120 million to take part in an auction scheduled for Monday. He also faced pressure to cover costs that have been incurred by suppliers and advisers since the company filed for bankruptcy in October.

If his new bid passes muster with creditors and the court, Lampert can compete in the auction against bidders who would liquidate the company. He'll be able to use debt he controls as currency to pay for Sears, a process known as credit bidding, a Sears lawyer has said in court. But the company will reserve the right to review that offer and compare its value with others.

The higher offer is good news for vendors who would like to see the business continue and keep ordering their goods, said David Wander, a bankruptcy attorney at Davidoff Hutcher & Citron who represents two Sears vendors. The more money ESL puts on the table, the better it will look relative to the liquidators, he said. "They need to get the bid as close as possible to the liquidation analysis, and then Lampert can also play his trump card of saving thousands of jobs."

ESL says it will not be entitled to any break-up fee if its bid is not chosen, and, if approved by the debtors and the court, it would only be reimbursed for expenses outlined in the revised asset purchase agreement, according to the filing.

"We believe our proposal will provide substantially more value to stakeholders than any other option, in particular a liquidation, and is the best path forward for Sears, its associates and the many communities across the United States touched by Sears and Kmart stores," ESL said in an emailed statement.

Lampert said in a Jan. 9 letter accompanying the filing that ESL is still working with lenders to finalize a $175 million secured real estate loan. ESL already agreed to put up half the money, and "we currently expect that other lenders will provide the balance of the commitment in the near term."

ESL will pay as much as $135 million of property taxes for locations acquired in the bid, it said in the filing. The plan also proposes to acquire additional assets including about 57 properties, as well as accounts receivables and additional inventory.

The bid is still conditional on the release of Lampert and ESL from claims tied to controversial rescue deals before the bankruptcy, which some creditors contend unfairly benefited ESL.

ESL ranks as Sears' biggest shareholder and creditor. Lampert initially made a $4.4 billion bid to take over selected stores and keep the chain open, but he's been unable so far to convince some of the other creditors that he could ever make Sears profitable again.

Some creditors have concluded that they can recover more of their investment if the stores and other assets are auctioned off. U.S. bankruptcy court Judge Robert Drain reminded the Sears lawyers at a hearing this week that the company has an obligation to review all its options, not just the offer from Lampert.

One obstacle could be the official committee of unsecured creditors, who said in court they will continue to challenge the legitimacy of the liens underpinning the debt ESL holds. This could hobble Lampert's bid, which depends partly on exchanging debt for control of the company.

"The ESL bid is really perpetuating Lampert, who is the problem," said Burt Flickinger, managing director of retail-advisory firm Strategic Resource Group. The company would be better off going into liquidation and selling off the profitable operating units, he said. "ESL isn't the solution for Sears."
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Title Annotation:Business wire_
Publication:Daily Herald (Arlington Heights, IL)
Date:Jan 11, 2019
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