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Shares of Sears Holdings Corp. Spike on News of Lampert’s $5.2B Deal

Edward S. Lampert apparently won the Sears Holdings Corp. auction with a $5.2 billion bid, and the news sent shares of Sears jumping 43.2 percent in late-morning trading.

Sears filed a voluntary Chapter 11 bankruptcy court petition on Oct. 15, and there’s been a push since then by some creditors to liquidate the company. Lampert, who is chairman of both Sears and his hedge fund ESL Investments, put in a $4.4 billion bid on Dec. 28 to bail out the retailer from bankruptcy court proceedings. Sears operates stores under the Sears and Kmart nameplates. Creditors, concerned that the bid didn’t have enough cash to prevent an administrative insolvency, balked at the offer and Lampert upped the bid last week to “over $5 billion.” The ESL bid was made through an affiliate, Transform Holdco, LLC, of which Lampert is chief executive officer.

During the court-approved auction that began on Monday, creditors were still pushing for a liquidation. And while liquidation firm Abacus Advisory Group was in the background as back-up, it was largely sidelined as talks centered on getting Lampert to pay up even more. That made sense given that a bankruptcy auction is supposed to help the debtor garner the best offer for its assets.

In the case of Sears, Lampert was the sole “qualifying bid” to take Sears out of bankruptcy as a going concern. But it was unclear at the start of Monday’s auction just how much higher Lampert would be willing to go to keep ownership of Sears.

While cash is king in bankruptcy court, the highest offer isn’t necessarily always considered the best offer. There are other factors that can be determinative of the end result. While the unsecured creditors were haggling for more money, they reportedly didn’t get the cash they wanted. What they got instead was a concession from Lampert to assume a greater portion of liabilities, raising the total value of the new bid to $5.2 billion. The assumption at least ensures payment of administrative expenses, such as fees for Sears’ different advisors in the bankruptcy.

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What isn’t clear yet is whether Lampert was able to get the release he wanted to shield himself and ESL from any future legal claims for past transactions between Sears and ESL. The unsecured creditors committee in the Sears bankruptcy had been threatening possible litigation over allegations of conflict of interest in an effort to pull more cash into the Sears bankruptcy estate to pay down the creditor claims. But there was always a question of just exactly how much would they have been able to prove – Sears and ESL were both advised by separate financial and legal advisors and all deals were approved by Sears’ board – and the aggressive stance could have been legal positioning as a form of leverage to get a better offer from Lampert.

The fact that Sears gets a second lease in life has other benefits, such as saving the jobs of 50,000 Sears employees – something that ELS has touted every time it raised its offer. Other beneficiaries include keeping alive the lifeline of business accounts for many vendors and suppliers who are part of Sears’ supply chain.

Shares of Sears were at 71 cents in over-the-counter trading at 11:44 a.m.

Spokesman for both Sears and ESL declined comment. The next move for Lampert is obtaining bankruptcy court approval of his offer. A hearing is slated for Jan. 31.