Sears Holdings‘ (NASDAQ:SHLD) breakup is being billed as the best way to unlock the company’s true value for shareholders. In reality, it’s mostly a reshuffling of assets, and charging shareholders for the effort. And, as is all too often the case now, the dream and the numbers don’t quite jive.

Come Friday, what’s currently one company will become two companies. The namesake stores (and the remaining Kmarts) will stay under the Sears Holdings umbrella, while about 1,200 Sears Hometown and Sears Outlet stores will begin trading as a new entity, using the ticker SHOS.

What will SHLD owners be getting with the so-called spinoff? And more important, will they want it?

That’s where things get interesting.

Not Exactly a Spinoff

Majority shareholder Eddie Lampert can call it whatever he wants. Just know that the term “spinoff,” as nice as it sounds, isn’t quite the right word.

On Friday, the parent company will be distributing 23.1 million newly minted SHOS shares to investors willing to pay $15 a pop. With an average open-market price for each of those rights around $2.50 before expiring earlier this week, the total cost to shareholders to own a stake in the spinoff company comes to $404 million, $346 million of which will actually be realized in net proceeds.

If it seems more like an IPO than a spinoff, that’s because it is more of an IPO. And that’s not even the strangest thing.

While it would almost be palatable if those proceeds were added to Sears Hometown and Outlet’s coffers (after all, it never hurts to be well funded), that’s not where the money’s going. That cash is being transferred over to Sears Holdings, where it will be added to the $730 million Sears is already sitting on.

Oh, and let’s not forget that Sears Hometown and Outlet will be taking out a $100 million loan to fork over to Sears Holdings as a special dividend, bringing the total net proceeds of the so-called spinoff to about $446 million. All told, the deal’s going to beef Sears Holdings’ war chest up to about $1.17 billion.

It might end up being the world’s most lucrative “spinoff”; such deals generally don’t require shareholders of the current company to dig into their pockets.

Crunching the Numbers

Semantics aside, what will shareholders of the new company be getting for their $15 per share, or $446 million in sum? Quite a bit, actually.

The pieces of the larger company that Eddie Lampert’s ESL fund is shedding might only play a small role in terms of Sears Holdings’ total revenue, but they play a surprisingly outsized role when it comes to earnings.

The hardware, appliance and liquidation division drove $2.6 billion of the company’s $41 billion in sales last year, but is one of the retailers’ bright spots when it comes to net margins.

Over the course of the first six fiscal months of this year, the Hometown and Outlet arm generated $41.6 million in profit. Given that the best time of year (for sales and profits) is yet to come, based on those numbers, it wouldn’t be out of line to expect a full-year profit of $100 million or so for SHOS. That’s not bad for a company that’s technically worth $346 million in terms of capitalization and producing $2 billion in annual sales, even if it is going to start out with $100 million of debt on the books. Indeed, it translates into a P/E of less than 4 … which leaves little to be desired.

So what’s the catch?

The strong numbers seen in the first six months of the year aren’t in a position to be reproduced in perpetuity. They should be OK going forward, but they won’t be as stellar, for a handful of reasons:

• SHOS is tapping into the parent company’s liquidity right now. It’s still not clear what kind of liquidity will exist for the spun-off company, but it appears no such provision has been made or offered. According to the prospectus, Sears Hometown and Outlet only has about half a million bucks in cash ready to tap. Granted, it doesn’t need a ton of cash, given the nature of its business, but this could end up being a stumbling block once it’s truly on its own.
• Not that interest rates are high right now, but once SHOS starts to service its debt, interest payments could naggingly chip away at margins.
• A few more of the stores are on the chopping block, and the company continues to work through conversions to franchised units (which can be surprisingly disruptive, even if fiscally beneficial).

None of the issues are a deal-breaker, though somewhere along the way Eddie Lampert is going to have to better explain why Sears Holdings is holding Sears Hometown and Outlet’s IPO money … because Hometown and Outlet actually might need some of it. Just for the record, though, Lampert’s ESL fund will also be the majority shareholder of SHOS. So, he’s on board.

Buy or Sell?

It’s not a bad deal from a valuation perspective (sales or earnings), but considering current Sears Holdings shareholders are being asked to at least partially buy what they technically already own, one has to wonder where that $15 per share of SHOS is going … or where it’s already gone.

Sears Hometown and Outlet seems to be more on the losing end of this already confusing fundraising deal, and as such, investors might want to steer clear until questions are answered; shares could be much cheaper in the near future.

The winner, of course, is Sears Holdings, which is pocketing the proceeds from the spinoff.

Only in America.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.