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Sears Holdings Jumps on Buyout Rumors

There may be some upside for investors if Sears goes private, but for the company? Not so much


Shares of Sears Holdings (NASDAQ:SHLD), which have tumbled over 50% over the past 52 weeks, soared today amid rumors that billionaire Edward Lampert, the company’s chairman, along with Bruce Berkowitz of Fairholme Capital Management, are looking to take the struggling retailer private.

The rumor — which was picked up on Reuters and CNBC — makes a ton of sense. Reuters reports that there was “unusual buying in Sears call options during the first 25 minutes of trading.” For years, investors have argued that Lampert might try to unload some of the company’s vast real estate holdings, which the Sears’ website brags offers a “portfolio of retail locations that is second to none.” The net book value of Sears’ securitized real estate assets was approximately $800 million as of Jan. 29, 2011, according to its latest 10-K. Sears would be seen as a distressed buyer now if it tried to sell vast amounts of real estate given its recent announcement that it plans to shutter as many as 120 underperforming stores.

Sears’ failures are many, and some predate the 2005 merger of Sears and Kmart that was orchestrated by Lampert. During the 1980s and ’90s, the company didn’t fashion a coherent brand identity as Wal-Mart (NYSE:WMT) positioned itself as the low-price leader and scads of rivals, including Target (NYSE:TGT) and Kohl’s (NYSE:KSS), plucked off Sears’ middle-class customer base. What is a Sears customer? Who knows?

In 2002, Sears acquired preppy retailer Land’s End for $1.9 billion. Merging the two companies was a bad idea from the get-go. Analysts have noted for years that the fit between the two was “awkward” — and that is still the case today. Selling Land’s End and other brands, such as Diehard, is an option that Lampert should consider to shore up the company’s finances.

Investors have no faith that Lampert’s efforts to turn around Sears — which began almost as soon as the ink dried on the merger between Sears, Roebuck & Co. and Kmart — will work. For one thing, he has always talked a good game but has failed to back up his words with deeds.

“We believe that we will have significant opportunities in the years ahead to create value through a combination of better operating performance and disciplined use of our capital and balance sheet.,” Lampert wrote in 2005 in his first letter to shareholders. “We expect to make mistakes as a company going forward, but we will acknowledge these mistakes, correct them and learn from them. “

Lampert’s latest efforts to revive the venerable retailer involved hiring Louis J. D’Ambrosio as CEO last year despite D’Ambrosio’s lack of experience in the industry. Earlier this month, Sears named ex-Brookstone executive Ron Boire as chief merchandising officer. Whether the team of Lampert, D’Ambrosio and Boire will succeed where others have failed remains to be seen.

Last week, Lampert spent $160 million on additional shares of Sears in a move that left shareholders stumped. Unfortunately, money alone won’t solve Sears’ problems.

As of this writing, Jonathan Berr was long Target.

Article printed from InvestorPlace Media,

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