Dive Brief:
- On Tuesday, the hedge fund controlled by Sears Holdings CEO Eddie Lampert made a formal proposal via letter to buy the retailer's Kenmore appliance brand and the home improvement unit of the Home Services division, according to a filing with the Securities and Exchange Commission.
- In the letter, ESL proposed purchasing Kenmore at a value of $400 million, which could be adjusted based on the brand's financial position at the time of a potential closing on the transaction. According to the filing, ESL has been in talks with potential partners to join in the acquisition and the transaction would depend on "ESL's receipt of equity financing from a potential partner on terms acceptable to it." The partner's name was not disclosed.
- The proposal also offers to buy the home improvement business at a value of $70 million. Additionally, the letter noted that ESL is still considering a deal for Sears' Parts Direct business, but the hedge fund is prioritizing the acquisitions of Kenmore and the home improvement business "in light of the complexities of separating Parts Direct from Sears Home Services Division and the timeline required to complete such a transaction."
Dive Insight:
The slow-burning fire sale of Sears Holdings' assets continues. A move to sell Kenmore for $400 million would be one more move this year that Sears has made to create liquidity and plug the outflow of cash from the business.
Lampert approached Sears about a deal for Kenmore and its home services businesses this spring. The Wall Street Journal has reported that "the original hope" was that ESL's initial letter of interest in acquiring the assets would "flush out other bidders." So far, no other proposal has emerged, though Sears has set up a task force to solicit bids beyond Lampert's, according to the company.
"If there were no other bidders for Kenmore, then presumably the board is selling it a price that is considered fair based on peer values but also factoring in the absence of other bidders," Philip Emma, a retail analyst with Debtwire, told Retail Dive in an email. "The real issue is understanding what the price is relative to the sales at Kenmore," he added, noting that the figure is not currently made public.
Emma also pointed out that valuations for Kenmore could also be affected by a prospective buyer's willingness to extend vendor to Sears on Kenmore shipments. "If an uninvolved third party purchased Kenmore, they’d have to take the credit risk. ESL is obviously comfortable with that credit risk, so it’s not simply an issue of price paid relative to sales, but the willingness of any bidder to provide vendor credit."
A sale of Kenmore to ESL would deepen the complicated financial relationship between Sears and its CEO. The company has borrowed hundreds of millions of dollars from ESL, and it has sold off hundreds of properties to a venture controlled by Lampert and his fund, among other transactions.
S&P analyst Robert Schulz told Retail Dive in April that a sale of Kenmore and the other units would be "consistent with their approach of selling legacy assets to fund any cash burn." Schulz pointed to Craftsman as a potential model for a Kenmore sale.
With the sale of the tool brand to Black & Decker, Sears has been able to keep selling the tools in its stores and source products independently, while Black & Decker has expanded the distribution of the brand, including to Lowe's. Sears on its own has already tried to broaden the audience and distribution of Kenmore — which over the years has lost significant market share but remains a major brand — by selling products through Amazon.
As with other asset divestments — including Craftsman, the sale of which dismayed some retail observers — spinning Kenmore off from Sears could leave the retailer without an exclusive brand that has been a draw for customers to its stores. It's a move against the current, where more retailers are expanding their private and exclusive label offerings to differentiate themselves. But it may be necessary to keep Sears solvent at the moment.
