December 6, 2018 – In a letter addressed to Lazard Frères & Co. and filed with the SEC
, ESL Investments, Inc. (“ESL”) submitted an indicative bid (the “Indicative Bid”) expressing an interest in acquiring, via a newly-formed entity (“Newco”), substantially all of the go-forward retail footprint and other assets and component businesses of Sears Holdings Corporation (together with its subsidiaries, “Sears”) as a going concern. In addressing key constituencies beyond creditors and the finance community, the letter stresses that, “The Indicative Bid contemplates that Newco expects to provide offers of ongoing employment to approximately 50,000 employees of Holdings and to reinstate Holdings’ prepetition severance program for the benefit of all eligible employees at close.”
The letter, signed by Edward Lampert (ESL CEO and Chairman and former CEO of Sears) states, “ESL believes that a future for Sears as a going concern is the only way to preserve tens of thousands of jobs and bring continued economic benefits to the many communities across the United States that are touched by Sears and Kmart stores….We believe there are significant benefits to preserving and maximizing the relationships between and among Sears’ retail business and its other operating businesses. Purchasing them together enhances the value and potential of each by continuing to build on long-held commercial relationships and supporting the synergies created by shared marketing, manufacturing, technology and administrative teams, to name just a few. Our Indicative Bid includes, and is conditioned on ESL’s ability to acquire substantially all of the assets of Debtors, as well as substantially all of the assets of non-Debtors, KCD IP, LLC, SRC O.P., LLC, SRC Facilities LLC and SRC Real Estate (TX), LLC.”
The Indicative Bid includes the following key terms:
Scope of Transaction. ESL’s bid is for substantially all of the assets of Debtors pursuant to a section 363 sale, as well as substantially all of the assets of non-Debtors, KCD IP, LLC, SRC O.P., LLC, SRC Facilities LLC and SRC Real Estate (TX), LLC. The purchased assets would include (a) the go-forward retail footprint of approximately 500 stores and related real estate interests (including headquarters and distribution locations), inventory, infrastructure and material related contracts and (b) Sears Auto Centers, Shop Your Way, Kenmore, DieHard, Monark, Innovel, Sears Home Services (including the Sears Home Improvement and PartsDirect business units) and material related contracts. Based on information provided by the Debtors, the purchased assets would include approximately $1.8 billion of Sears’ retail inventory and credit card and pharmacy receivables.
The ESL proposal also provides that Newco would acquire Sears’ tax assets and assumes, consistent with the Debtors’ projections, that the amounts outstanding under the Debtors’ first lien ABL DIP facility will be no greater than $950 million.
Consideration; Other Value. The total purchase price would provide approximately $4.6 billion in total consideration to Sears, based on information provided by the Debtors. This consideration would comprise:
- up to $950 million in cash to be funded with the proceeds of a new ABL facility to be obtained by Newco
- a credit bid of approximately $1.8 billion
- $500 million in a combination of cash, notes to be issued by Newco, equity of Newco and/or waiver or assignment of deficiency claims (including superpriority adequate protection claims) with respect to secured debt the roll-over of approximately $271 million in cash collateral currently supporting the L/C Facility
- the assumption of Sears’ liability with respect to (i) protection agreements issued by Sears Homes Services, (ii) certain gift cards and (iii) accrued points under the Shop Your Way program, in each case on terms to be agreed with the Debtors. ESL estimate these liabilities to be approximately $1.1 billion.
Conditions: ESL conditions its bid, inter alia, on (i) confirmation of ESL’s right to credit bid its secured debt in the amounts described herein (and without any requirement to cash collateralize or otherwise backstop any portion of the credit bid) and (ii) a full release by the Debtors of ESL from any liability related to any prepetition transactions involving ESL. To the extent any parties are challenging ESL’s credit bidding capability for any reason, ESL requests that such challenges are adjudicated to conclusion at or prior to the sale hearing with regard to the asset purchases.
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