It looks like Edward S. Lampert’s ESL Investments is looking to bail out another retailer: Sears Hometown and Outlet Stores Inc.
The hedge fund ESL earlier this year helped bail Sears Holdings Corp. out of bankruptcy proceedings, where it is now operating under the Sears and Kmart nameplates, but owned by an entity known as Transform Holdco. Hometown was spun off by Lampert, whose ESL owns a 58 percent stake, when he was chairman and chief executive officer of Sears in 2012. The stores are locally owned and operated.
The spin off has faced issues over the years, and last week ESL–through Transform Holdco– made an offer to acquire the equity that Lampert doesn’t already own for $2.25 a share. A regulatory filing with the Securities and Exchange Commission said the offer represented a 23.6 percent premium to the share-trading price five days–through April 5–before the offer was made.
Hometown sells hardline merchandise comprised of hardware and appliances. The Outlet business sells Sears merchandise at a discount, including apparel, soft home and sporting goods. When Sears exited bankruptcy proceedings, it was set to sell far less apparel in its stores as it focused more on hardlines, although many believe it will still have a a decent selection of apparel due to its higher margins.
One glitch on the Hometown front has been a decision by the board’s special committee to liquidate the Hometown business. To prevent that from happening, ESL said it has replaced two board members with two new directors, in line with the bylaws of Hometown, which require consent and approval by the majority of the shares owned. According to the bylaws, directors can be removed with or without cause. ESL also named John E. Tober and Alberto Franco to replace William K. Phelan and and David B. Robbins. And, ESL said, the bylaws of Hometown were amended to make sure that the new, reconstituted board has “time to adequately consider the effects of such a decision and listen to stockholders’ views.”
In a statement, ESL said, “ESL disagrees with any decision by the board of directors of Sears Hometown and Outlet Stores Inc. to liquidate the Hometown business without consultation with and support of the company’s shareholders….ESL was compelled to take these actions after it was unable to reach a reasonable agreement with a special committee of the company’s board to reconsider the liquidation of the Hometown business, a step we believe would diminish the company’s overall value and leave the residual company at risk.”
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A letter from ESL dated April 15 referenced the reason the Hometown board rejected the ESL offer: “The special committee continues to request a price for a transaction that would represent an unprecedented premium to the market value of the company’s stock.”