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Sears CEO’s offer to buy Kenmore: Boon or bane?

Rumors of bankruptcy emerge as Sears talks of purchasing Kenmore in the company’s attempt to rise above its current financial distress.

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Due to its less aggressive business strategy in the past — worsened by rumors of possible bankruptcy — Sears Holdings has been fraught with much doubt in the market as to how long it can hold its shops. This cast of doubt extends over to its CEO’s proposal to buy Kenmore, the company’s household appliance brand.

Last month, Sears Holdings CEO Eddie Lampert expressed plans to purchase from Sears its Kmart chains, through his hedge fund firm ESL Investment. The proposal, which includes the purchase of additional real estate, is now being reviewed by an independent committee of the board.

However, Lampert noted that Kenmore and PartsDirect, should they be acquired by ESL, will somehow still have coordination with Sears, according to a CNBC report.

The transaction is expected to leave Sears with its Auto Centers, the DieHard brand, its Innovel logistics business, and its Shop Your Way loyalty program.

ESL has estimated Sears’ Home Improvement and PartsDirect businesses to be pegged at $500 million. Although, the former has not laid out a price on how much it is willing to buy Sears’ assets.

Despite the large dent it may bring into Sears — which is raising concerns over another Toys R Us bankruptcy realization — Lampert said he will still operate for Sears’ sustainability in the online retail industry. The CEO, who owns about 50 percent of the firm, has so far exhausted over $1 billion on Sears to keep it open.

Sears and K-mart have been struggling in keeping up with the online retail giant Amazon. (Photo by DepositPhotos)

Sears and K-mart have been struggling in keeping up with the online retail giant Amazon. (Photo by DepositPhotos)

“In a perfect world — this would shrink, this would grow, and the grow would offset the shrink,” Lampert was quoted in a CNBC report, which also noted that the hedge fund manager declined to delve into the offer.

The CEO has seen his capital-saving tactic, among others, as a contributing factor in driving the company’s financial performance in terms of net profit.

However, the cost-cutting practice also meant not refilling investments in its operational stores, a source said.

“Sears and Kmart were already lacking so many resources, namely investment capital to fend off online upstarts like Amazon, and an experienced bench of retail executives, so these early cuts took an enormous toll,” the news report added.

The firm saw a record-breaking share price in April 2007 when each stock was priced at $195.18 each, a far cry from the range it is trading in today at below $4 apiece. In addition, the firm’s latest quarterly performance fell by a double-digit percentage rate, as shown in a report that also disclosed on several cash debts.

CNBC added that the firm has been handling loads of disagreements with suppliers — a hint of this may be drawn from the conclusion of its deal with Whirlpool in 2017.

All these factors indicate the almost certain outcome that Sears will soon file for bankruptcy, and Lampert’s offering is further establishing a concrete evidence to those speculations.

Susquehanna International Group analyst Bill Dreher said the firm “is entering into a deeper point of financial distress.” He also added that Sears “is closer to being forced to file for bankruptcy protection than we had previously suspected.”

(Featured Image by DepositPhotos)

Desmond O’Flynn is Irish but he’s not into boxing. He writes about finance and investing, as well as world politics and global economy. He used to believe that he didn’t have the luck of the Irish since he failed his art class thrice, but this immediately changed after meeting his wife Katarina, a startup interior design consultant based in Dublin. He is also a financial adviser.

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