Edward Lampert’s Transform Holdco, the owner of the Sears and Kmart nameplates, has signed a merger agreement to acquire Sears Hometown and Outlet Stores Inc. in a bid to combine ownership of all Sears stores under one umbrella.
According to the terms of the agreement, the parties agreed on a per-share price of $2.25 in cash, subject to an upward adjustment if certain criteria are met. Lampert would acquire the outstanding shares that his hedge fund ESL Investments Inc. doesn’t already own.
ESL Investments and its affiliates, the majority owners of Transform, own 58 percent of the outstanding shares of Sears Hometown. Sears Holdings Corp., the former parent of the Sears and Kmart nameplates, in 2012 spun off the Sears Hometown business when Lampert was chairman. Lampert’s Transform acquired the operating components of Sears Holdings, comprised of the Sears and Kmart nameplates, for $5.2 billion earlier this year after the former parent company filed for Chapter 11 bankruptcy court protection in October.
The Transform-Sears Hometown agreement gives the latter the ability to market its Sears Outlet and Buddy’s Home Furnishing Stores businesses for not less than $97.5 million. The caveats are that Sears Hometown has to ink an agreement to sell the two businesses by Aug. 24, 2019, and must complete the transaction by Oct. 23, 2019. In addition, Transform has the option to match the “economic terms of any proposed sale” to a third party, which it said is expected to result in net proceeds to Sears Hometown of less than $120 million.
Transform said its planned acquisition of Sears Hometown is expected to close during the third quarter of 2019. Word first surfaced in April that ESL was looking to acquire Sears Hometown as a way to help it avoid a liquidation. That’s a familiar move for Lampert and his hedge fund, which previously took Kmart out of bankruptcy proceedings in 2005 and Sears in February.
“We are excited to bring Sears Hometown, its associates and network of independent dealers and franchisees back into the Sears and Kmart family,” Lampert, chairman of Transform, said. “While, initially, the companies will operate independently, we see many opportunities where we can partner to serve our customers better and enjoy efficiencies of scale once these businesses are under one roof.”
Will Powell, president and chief executive officer of Sears Hometown, said, “I believe this is the best path forward for Sears Hometown and serves the interests of all our constituents, including our customers, associates, dealers, franchisees and stockholders.”
Powell also said combining the operations of Sears Hometown and the Sears full-line stores will provide a more consistent customer experience across all of Sears’ branded storefronts, and generate higher total revenues as the operations benefit from the leveraging of efficiencies of scale.
Currently, Sears Hometown operates 491 Hometown stores and 126 Outlet stores across 49 states, Puerto Rico and Bermuda. Sears Hometown posted $1.4 billion in net sales in 2018. Transform said the merger of the two will make the combined entity the “third largest appliance retailer in the United States.” Hometown sells hardware and appliances, while Outlet sells Sears merchandise at a discount, including apparel, soft home and sporting goods.
While Sears and Kmart still sell apparel, the initial strategy to build back the business after Transform acquired the Sears and Kmart nameplates was to focus on expanding hardlines at the reorganized operation.