HOFFMAN ESTATES, Ill.,
April 23, 2018 /PRNewswire/
-- Sears Holdings Corporation (the "Company") (NASDAQ: SHLD)
today announced that its Board of Directors ("Board") has received
a letter from ESL Investments, Inc. ("ESL") expressing the view
that the Company should pursue a divestiture of all or a portion of
(i) the Kenmore brand and related assets ("Kenmore"), (ii) the
Sears Home Improvement business of the Sears Home Services division
("SHIP"), and (iii) the PartsDirect business of the Sears Home
Services division ("PartsDirect").
The letter notes that Kenmore, SHIP, and PartsDirect have
substantial value and that divesting one or more of them would
enable the Company to improve its debt profile and liquidity
position. The letter further states that if the Company determines
to pursue a divesture of any of Kenmore, SHIP, or PartsDirect, ESL
would be interested in participating as a buyer. In pertinent part,
the letter outlines the following:
- ESL's non-binding proposal to acquire SHIP and PartsDirect
based on an enterprise value of $500
million and on the other terms set forth in the letter;
- ESL's willingness to submit a proposal to acquire Kenmore;
and
- ESL's willingness to make an offer for certain real estate
owned by the Company (including the assumption of certain debt
obligations secured by that real estate) with the expectation of
entering into an ongoing master lease for some or all of the stores
to allow for their continued operation.
The letter emphasizes that ESL's principal interest is seeing
that the Kenmore, SHIP, and PartsDirect businesses are divested in
the near term at a full and fair value, regardless of whether ESL
or a third party is the ultimate buyer. To ensure a fair process,
ESL confirmed that:
- It will not participate in any transaction as a buyer unless
such transaction is both recommended by a committee of independent
directors of the Company's Board that is fully empowered to
consider such transaction, and approved by the holders of a
majority of the shares of common stock of the Company held by
disinterested stockholders;
- Edward S. Lampert and
Kunal S. Kamlani will not
participate on behalf of the Company (as officer or director) in
any discussions, deliberations, negotiations, or decisions with
respect to a potential transaction in which ESL participates as a
buyer, except to the extent specifically requested by that
committee; and
- It would accept that any transaction in which ESL participates
as a buyer would be subject to a "go shop" process on reasonable
terms.
The letter from ESL will be reviewed and considered by a
committee of independent directors of the Company's Board. There
can be no assurance that this letter will result in a transaction
or on what terms any transaction may occur. The Company does not
intend to comment further unless and until it determines that
additional disclosure is appropriate.
The full text of the letter appears below:
April 20, 2018
Board of Directors
Sears Holdings Corporation
3333 Beverly Road
Hoffman Estates, Illinois
60179
Ladies and Gentlemen,
Funds affiliated with ESL Investments are the largest
stockholders of, and substantial lenders to, Sears Holding
Corporation ("Sears"). We continue to see value in Sears and its
underlying assets and believe strongly that with an appropriate
runway Sears will be able to complete its transformation to respond
to the challenging retail environment. We also are of the view that
the portfolio of Sears' assets has substantial value that is not
being reflected in the capital markets or being maximized under the
current organizational structure. These assets include the Kenmore
brand and related assets ("Kenmore"), the Home Improvement business
of the Sears Home Services division ("SHIP"), and the Parts Direct
business of the Sears Home Services division ("Parts Direct").
We understand that Sears has marketed certain of these assets
for nearly two years but, with the exception of the Craftsman
divestiture, has been unable to reach agreement with potential
purchasers on acceptable terms. We are writing to confirm the view
that we have recently expressed to you that Sears should
aggressively pursue a divestiture of all or a portion of Kenmore,
SHIP and Parts Direct and to express ESL's interest in
participating in such divestitures. In our view, pursuing
these divestitures now will demonstrate the value of Sears'
portfolio of assets, will provide an important source of liquidity
to Sears and could avoid any deterioration in the value of such
assets. In particular:
- ESL believes that Kenmore is an iconic brand with substantial
value and Sears should aggressively pursue a divestiture of all, or
a portion of, Kenmore in the near term. If Sears believes it would
be helpful, ESL would be prepared to submit a proposal for such a
transaction and believes it would be able to close such a
transaction within 90 days.
- ESL is pleased to submit a non-binding indication of interest
to acquire SHIP and Parts Direct on the terms set forth below.
Additionally, if requested by the Sears Board of Directors, ESL
also would be open to making an offer for Sears' real estate
(including the assumption of the $1.2
billion of debt obligations secured by such real estate),
with the expectation of entering into an ongoing master lease for
some or all of the stores to allow for their continued
operation.
ESL would like to emphasize that its principal interest is
seeing that the Kenmore, SHIP and Parts Direct businesses are
divested in the near term at a full and fair value, regardless of
whether ESL or a third party is the ultimate buyer, so that Sears
is able to improve its debt profile and liquidity position. As a
result, to ensure a fair process, ESL hereby confirms that:
- Edward S. Lampert and
Kunal S. Kamlani will not
participate on behalf of Sears (as officer or director) in any
discussions, deliberations, negotiations or decisions with respect
to a potential transaction in which ESL participates as a buyer,
except to the extent specifically requested by the committee
referred to below.
- ESL will not participate in any such transaction as a buyer
unless such transaction is both (i) recommended by the related
party transaction committee (or another committee of independent
directors) of the Sears Board of Directors, which is fully
empowered to consider such transaction, and (ii) approved by the
holders of a majority of the shares of Sears held by disinterested
stockholders.
- ESL would accept that any transaction in which ESL participates
as a buyer would be subject to a "go shop" process on reasonable
terms.
We believe that adherence to the foregoing procedures will
ensure that any transaction with ESL will be on fair and reasonable
terms.
Key terms of our proposal to acquire SHIP and Parts Direct are
set out below:
- Valuation: We are interested in acquiring 100% of
the equity of SHIP and Parts Direct based on an enterprise value of
$500 million. The purchase price
would be paid in cash and SHIP and Parts Direct would be acquired
on a debt-free and cash-free basis with normalized levels of
working capital.
- Other Agreements: We would expect that Sears will enter
into certain interim and long-term agreements with SHIP and Parts
Direct to enable the continued operation of those businesses as
they operate today. These agreements would include transition
services agreements with Sears for a period of time, a brand
licensing agreement for SHIP and Parts Direct and other customary
ancillary documents for a transaction of this type. Our proposal is
also subject to receiving the required consents to assign the
supplier agreements to the buyer from the suppliers of each of SHIP
and Parts Direct.
- Financing: The cash consideration for the transaction
would be financed with equity contributions from ESL and third
party debt financing. At the appropriate time, we would also be
open to discussing with you the possibility of partnering with
third parties who might be interested in contributing equity
financing. We do not anticipate any financing condition, since we
plan to have our financing fully committed at the time we sign a
definitive agreement.
- Exchange and Tender Offers: The transaction would be
undertaken in connection with (i) an exchange offer with respect to
50% of approximately $600 million in
outstanding 2nd lien indebtedness not secured by real
estate for equity in Sears of equal value, and (ii) a tender offer
for 100% of Sears' approximately $900
million in outstanding unsecured indebtedness at a discount
to par reflective of the current trading prices or, alternatively,
for Sears equity. ESL believes that the exchange offer and
the tender offer would be beneficial to the debt holders, by
providing liquidity, to Sears, by reducing its debt obligations,
and to equity holders, by reducing risk and giving Sears time to
pursue value maximizing strategies. Assuming the proceeds from the
contemplated divestitures is sufficient to allow Sears to
substantially reduce its overall leverage, ESL would consider
participating in such exchange offer and tender offer.
- Timing and Advisors: We are prepared to move as quickly
as possible to complete customary due diligence for a transaction
of this nature and enter into definitive agreements. We believe
that an expedited process is in the best interest of all parties
involved. We have retained Moelis & Company as financial
advisor and Cleary Gottlieb Steen
& Hamilton LLP as legal counsel. Please feel free to reach out
to any of the below regarding this Proposal.
Lawrence S.
Chu
|
Christopher E.
Austin
|
Moelis &
Company
|
Benet
O'Reilly
|
Managing
Director
|
Cleary Gottlieb Steen
& Hamilton LLP
|
(212)
883-4588
|
Partner
|
LC@moelis.com
|
(212)
225-2434
|
|
CAustin@cgsh.com
|
|
BOReilly@cgsh.com
|
This letter reflects ESL's non-binding indication of interest.
Nothing in this letter should be considered to constitute or create
a binding obligation or commitment of ESL to proceed with, or
consummate, any transaction. Any transaction among the parties will
be subject to, and qualified in its entirety by, the execution and
delivery of a mutually acceptable definitive agreement.
This proposal, including the exchange offer and tender offer and
any alternative transactions with third parties, are part of a
comprehensive solution to create a viable and healthy Sears, and
will allow Sears to reduce its debt, extend its maturity profile
and alleviate its liquidity challenges.
We are very enthusiastic about our ownership interest in Sears
and its future, and will remain so whether or not a transaction is
consummated. We are available to discuss the foregoing at your
convenience.
Very truly yours,
ESL INVESTMENTS, INC.
/s/ Edward S.
Lampert
Edward S. Lampert
Chairman and CEO
About Sears Holdings Corporation
Sears Holdings Corporation (NASDAQ: SHLD) is a leading
integrated retailer focused on seamlessly connecting the digital
and physical shopping experiences to serve our members - wherever,
whenever and however they want to shop. Sears Holdings is home to
Shop Your Way®, a social shopping platform offering members rewards
for shopping at Sears and Kmart as well as with other retail
partners across categories important to them. The Company operates
through its subsidiaries, including Sears, Roebuck and Co. and
Kmart Corporation, with full-line and specialty retail stores
across the United States. For more
information, visit www.searsholdings.com.
Forward-Looking Statements
This press release contains forward-looking statements intended
to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. Whenever used,
words such as "will," "expect," and other terms of similar meaning
are intended to identify such forward-looking statements.
Forward-looking statements, including these, are based on the
current beliefs and expectations of our management and are subject
to significant risks, assumptions and uncertainties, many of which
are beyond the Company's control, that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by these forward-looking statements. Detailed descriptions
of risks, uncertainties and factors relating to Sears Holdings are
discussed in our most recent Annual Report on Form 10-K and other
filings with the Securities and Exchange Commission. While we
believe that our forecasts and assumptions are reasonable, we
caution that actual results may differ materially. We intend the
forward-looking statements to speak only as of the time made and do
not undertake to update or revise them as more information becomes
available, except as required by law.
NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371
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SOURCE Sears Holdings Corporation