Come on guys, there really isn’t anything to think about here.
Failed Sears Holdings CEO turn post bankruptcy Chairman and hedgie Eddie Lampert late Monday offered to buy the remaining 41% of struggling Sears Hometown & Outlet Stores he didn’t own. The purchase price: a measly $21 million or $2.25 a share.
Sears Hometown & Outlet Stores’ market cap was about $49 million prior to Lampert’s bid. Shares spiked about 11% Tuesday to $2.42 following Lampert’s offer.
Interestingly, the board of Sears Hometown & Outlet Stores — which is filled with several former Sears lifers — quickly rejected Lampert’s offer.
“Following the review of the Proposal by the special committee and its advisors, the special committee concluded that a transaction on the terms contemplated by the Proposal would not be in the best interests of the Company’s unaffiliated stockholders and communicated that conclusion to representatives of Transform. The parties are continuing discussions regarding potential transactions between the parties,” Sears Hometown & Outlet Stores said in a statement.
Take the money and run.
Sears Hometown doomed from the start
Sears Hometown & Outlet Stores was a 2012 spin-off that largely rewarded a then cash-hemorrhaging Sears. Obviously that was by Lampert’s design, much to the chagrin of early investors in Sears Hometown & Outlet Stores that rode the stock to an all-time high of about $53 in late May 2013.
The business spin-off hauled in roughly $446 million in proceeds for Sears. It also gave Sears a pipeline to dump unsold appliance and tool inventory to. Further, Sears Hometown & Outlet Stores has continued to pay Sears a service fee for the right to use its name and various services.
But the business was doomed from the start because of its flawed business model. At its core, Sears Hometown & Outlet Stores remains absurdly reliant on Sears to procure inventory (70%-plus of inventory comes from Sears) and operate its tech infrastructure (it’s shared). Those are untenable positions when a company such as now bankrupt Sears Holdings has canned thousands of workers throughout its supply chain.
An added sweetener: Sears Hometown & Outlet Stores is blocked from opening new stores within two miles of a Sears store. The non-compete agreement has prevented the brand from attracting the traffic visiting the malls where Sears is located.
Above all else, Sears Hometown & Outlet Stores has relied on the Sears name to drive its performance. Not exactly an enviable thing considering how tarnished the brand has become with the retailer’s highly publicized trip through the bankruptcy courts late last year and overall lackluster shopping experience.
All of these factors have taken a severe toll on Sears Hometown & Outlet Stores. The business lost $53.5 million (continuing a string of annual losses) in 2018 on a 4.6% same-store sales decline. Cash ended the year at a mere $15 million versus $221 million in current liabilities.
And just like its big brother, Sears Hometown & Outlet Stores has closed hundreds of stores in recent years to conserve cash. The company has about 667 stores in operation, down from more than 1,200 in 2015.
A similar fate as bankrupt Sears
The likely outcome here is that Sears Hometown & Outlet Stores board sucks a few more pennies out of the pocket of Lampert and rejoins the zombie that is the post-bankrupt Sears Holdings. Given how terribly Sears Hometown & Outlet Stores has performed since the spin-off (in large part due to Lampert’s terrible leadership at Sears), there isn’t much more negotiating room for those pennies.
Lampert gets 600-plus stores for $21 million.
Misery loves company, even in second marriages.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi