Eddie Lampert can call it whatever he wants, but it won’t change what the impending spinoff of Lands End from parent company Sears Holding (SHLD) really is: a desperate effort to buy Sears a little more time before its inevitable demise, ultimately paid for by SHLD stock owners who are eagerly (and errantly) waiting to receive their stake in the Lands End corporation.
Harsh? Perhaps, but the details of the deal and Lampert’s history of spinoffs make it tough to come to any other conclusion. Current SHLD shareholders expecting the maneuver to unlock hidden value may want to read the fine print and review some older headlines.
Lands’ End Spinoff Details
With just a quick glance, the split of Lands End from SHLD looks like a run-of-the-mill deal. For every share of SHLD stock an investor owns as of March 24, they’ll get 0.30 shares of LE — Lands End’s assigned symbol. That implies about 32 million shares of LE will be issued come April 7.
What SHLD investors will be getting with Lands End is a company that generated $1.56 billion in revenue last year, and a company that turned $80 million of that revenue into profit. Not bad. Not great, but not bad.
Even though Lands End’s revenue had been slipping since 2011’s peak of $1.73 billion, given the chaos that parent company Sears had created for all of its brands and entities, it’s a forgivable sin. Indeed, Lands End may well thrive again when no longer under the SHLD umbrella.
There’s more to the story, however.
Before casting off Lands End, Sears will be collecting a $500 million dividend from Lands End, tapping into a $515 million credit facility and possibly even accessing a $175 million credit line to make the payment, at which time Sears will pass along shares of the new company — saddled with roughly half a billion dollars in debt — to existing SHLD stock holders.
If it doesn’t quite seem fair, that’s because it’s not fair. Then again, playing fair was never the point with previous, similar financial maneuvers from Lampert. Why should this one be any different?
A Shady Spinoff History for Sears Holding
Just for the record, this isn’t the first time Sears has loaded up a subsidiary with debt and then dumped it. Back in early 2012, the retailer spun off its 89 Orchard Supply hardware stores, but not before taking $340 million in debt off of Sears’ books. Less than two years later, Orchard Supply had filed for bankruptcy, unable to service the debt it was been loaded down with.