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Sears to Sell Most of Canadian Stake to Raise $380 Million

Sears Holdings Corp. announced Thursday that it would sell off most of its stake in Sears Canada, which is expected to generate $380 million in much needed liquidity in advance of the holiday season.

The retailer will sell 40 million common shares of Sears Canada to its shareholders—including CEO and chairman Edward Lampert and his hedge fund, ESL Investments, Inc.—and expects the exercise to generate at least $168 million by mid to late October, with the balance coming in by early November.

Sears has been investigating ways to bring itself back from the brink for the last year. In August, the company reported a net loss of $573 million for the second quarter, considerably higher than the $194 million reported in the prior year period. Its current president and chief executive Douglas C. Campbell also announced last week that he would resign from his post by the end of this year, just one year after he took on the roles.

The retailer recently secured a $400 million short-term loan from ESL Investments in order to sustain its business, and according to the company, to “support its transformation.” But despite the loan, Sears still required significant cash proceeds, and thus settled on the move to offer up the shares of its Canadian unit.

According to a company statement, “It [the Canadian share sale] satisfies the dual goals of receiving significant cash value from its stake in Sears Canada and concurrently reducing our investment in Sears Canada, while continuing to retain approximately 12 million shares valued at about $113 million.”

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Holders of Sears Holdings common stock will receive one subscription right for each share of stock held at close of business Oct. 20, and each subscription right will entitle the holder to buy Sears Canada shares at $10.60 (Canadian). Sears Canada will apply to list its shares on Nasdaq, where the subscription rights will be traded.

Rob Schriesheim, Sears Holdings’ chief financial officer said, “Proceeds from the rights offering will provide additional liquidity to Holdings as it enters into the holiday period and will be used for general corporate purposes. Together with the $500 million dividend Holdings received in connection with the Lands’ End spinoff, the $165 million in proceeds from certain real estate transactions and the $400 million short-term loan the Company recently completed, Holdings will have generated up to $1.445 billion in liquidity in fiscal 2014, further demonstrating the Company’s financial flexibility and providing it the means to fund its transformation and meet all of its obligations.”

Schriesheim added, “Over the next six to 12 months, [Sears] Holdings intends to evaluate its capital structure with a goal of achieving more long-term financial flexibility, and may take other actions as appropriate.”