Lampert’s winning bid for Sears swelled to $5.2 billion

Eddie Lampert’s plan to save Sears cost an extra $200 million before it became official.

The chairman and former CEO of Sears Holdings won an auction for the company’s operating assets Wednesday, but the details weren’t clear until Thursday.

The value of the final bid for Sears came in at $5.2 billion, a $200 million increase over Lampert’s original offer, which he made through his hedge fund. Negotiators worked throughout the day Tuesday and into the early hours of Wednesday to hammer out an improved offer.

Lampert’s was the only bid that would keep Sears and Kmart stores open.

His amended offer would save about 45,000 jobs, according to Sears. That’s slightly less than the 50,000 jobs he had proposed earlier.

Others involved in the bankruptcy process, including lawyers representing a committee of creditors, have advocated starting the process of shutting down the company, arguing it does not have a chance to succeed.

They have called the idea that Sears could be successful again as “nothing more than wishful thinking” in a court filing.

But Lampert insists that a slimmer Sears can be a profitable and competitive retailer once again. He plans to use the bankruptcy process to shed debt and close unprofitable stores.

“We believe Sears has a future as a profitable company that can succeed in today’s competitive retail landscape,” said a statement from his hedge fund.

Bankruptcy judge to have final say

Being designated as the winning bidder does not close the deal. Bankruptcy court Judge Robert Drain will consider objections to the bid and hold a hearing on February 1.

If he approves the deal, it could close as soon as February 8, according to Sears.

Lampert brought together Sears and Kmart in 2005. The merger combined two retailers that were both already struggling. More recently, Lampert served as CEO of the holding company up until the moment it filed for bankruptcy in October.

Besides being the controlling shareholder, he was the largest creditor.

His bid includes a plan to forgive more than $1 billion he had loaned the company.

But attorneys for the other creditors argued against debt forgiveness. Because Lampert loaned Sears the money when he was chairman and CEO, they say, the terms of those loans unduly benefited Lampert and his hedge fund rather than Sears.

Lampert and his hedge fund argues that the loans were proper and made to keep Sears alive.

If the judge accepts the creditors’ arguments, it could kill Lampert’s chance of buying the company’s assets.

A much smaller Sears

Should Sears survive, it will be a much smaller retailer with no stores in a wide swath of Middle America. Most of the remaining stores will be on the West Coast, Northeast and Middle Atlantic, Florida and Texas.

In its heyday in the 20th century Sears was not only the largest retailer, it employed more people than any other US business. With its catalog business and its stores anchoring major malls across the country, was once both the Amazon (AMZN) and Walmart (WMT) of its day.

But well before the competition from online shopping caused it problems, it started to lose out to big box competitors such as Walmart and Home Depot (HD) that offered better selection of goods and lower prices.

Still the combined Sears and Kmart had 3,500 US stores and 355,000 employees at the time of the merger. But the problems accelerated, as Lampert and other management tried to turn things around by closing stores and cutting costs, rather than investing in stores. The company also squandered $6 billion repurchasing its now worthless shares in an failed effort to support stock price. Stores became barren and uninviting.

The company lost $12 billion since 2010, the last time it posted an annual profit. By the start of 2018 it was down to 1,000 stores and 89,000 employees.

Emerging from bankruptcy doesn’t necessarily guarantee success. A number of retailers have made it through bankruptcy, only to go out of businesses after filing for bankruptcy again in relatively short order.

Late Wednesday children’s clothing retailer Gymboree filed for bankruptcy for the second time in less than two years an announced it would close all of its Gymboree-branded stores. RadioShack also recently suffered this exact fate.