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Sears should sell Kenmore, units: CEO Lampert's fund says

By Vibhuti Sharma
FILE PHOTO: A Sears logo is seen inside a department store in Garden City, New York, U.S., May 23, 2016. REUTERS/Shannon Stapleton

By Vibhuti Sharma

(Reuters) - Sears Holdings Corp Chief Executive Eddie Lampert said the retailer should sell its Kenmore appliances brand, home improvement businesses, and real estate, adding that his hedge fund ESL Investments Inc would bid in any sale.

In a letter dated April 20 and signed by Lampert, the retailer's controlling shareholder, ESL offered to acquire Sears Home Improvement and PartsDirect, both part of the Sears Home Services division, for $500 million, and it proposed to submit a bid for Kenmore and the chain's real estate.

A sale would infuse cash into Sears, the parent company of the Sears department stores and Kmart discount chain, which warned last year about its ability to continue as a going concern.

"This will enable Sears to improve its debt profile and liquidity position, creating the runway to help continue its transformation," according to a statement from ESL.

Some of Sears' assets have been up for sale for more than two years, but the Illinois-based company has not been able to find an acceptable buyer, according to the letter.

After the sales, Sears would consist mainly of its long-struggling retail operations, said sources familiar with the matter.

"It looks to be a last-ditch effort to extract some value from Sears' very bare cupboard of remaining assets," said Ken Perkins, founder of retail research firm Retail Metrics.

Shares of Sears, which have collapsed over the past five years, closed 7.6 percent higher at $3.24 on Nasdaq.

A decade ago they were worth $119.

To avoid bankruptcy, Sears last year sold its Craftsman tool brand to power tool maker Stanley Black & Decker for $900 million, and signed a deal to sell Kenmore appliances on e-commerce site Amazon.com . In 2015, Sears spun off 235 of its best stores to create Seritage Growth Properties, generating $2.7 billion for the department store operator, another life-prolonging deal.

Sears Canada Inc filed for bankruptcy and went out of business last year.

Lampert is the biggest shareholder in Sears, with more than 30 percent stake, and a major lender to the company. In the letter, he said Sears' assets have value that is not currently being reflected in the capital markets or in the company's current structure.

ESL would submit a proposal for Kenmore and the transaction would close such a within 90 days, Lampert said.

The letter also said ESL is open to making an offer for Sears' real estate, including some of its stores and $1.2 billion of debt obligations.

The cash consideration for the deal would be financed with equity contributions from ESL and third party debt financing, the letter said.

Lampert and ESL President Kunal Kamlani would not participate on behalf of the company in any talks or decisions for any potential transaction involving ESL as a buyer, it said.

Moelis & Co would act as financial adviser, and Cleary Gottlieb Steen & Hamilton LLP as lawyers for any transaction.

(Reporting by Vibhuti Sharma in Bengaluru; additional reporting by Liana Baker and Jessica DiNapoli in New York; Editing by Patrick Graham, Steve Orlofsky and Jonathan Oatis)