Sears Holdings Corp. (SHLD:US)’s plan to spin off its Hometown and Outlet stores may give Chairman Edward Lampert an opportunity to hold a larger stake in the new publicly traded company.
The business will be spun off through a rights offering in the third quarter and trade on the Nasdaq Stock Market with the ticker symbol “SHOS,” Hoffman Estates, Illinois-based Sears said yesterday in a filing with the U.S. Securities and Exchange Commission.
Lampert’s ESL Investments Inc. hedge fund will buy all the stock it’s entitled to and as many shares as possible that aren’t purchased by other holders that have rights to invest in the new entity, Sears said. That may enable Lampert and his funds to control a larger share of the new company than their approximately 62 percent stake (SHLD:US) in Sears.
The retailer hasn’t decided whether the new business will take on any debt, it said. All or some of any debt incurred would be used to fund a cash dividend to be paid to Sears, the company said.
“It’s a way of extracting value out the company for the shareholders,” Mary Ross Gilbert, an analyst at Imperial Capital LLC in Los Angeles, said in a phone interview. “You’re buying it at a cheap price, likely close to trough level.”
Ross rates (SHLD:US) Sears underperform, the equivalent of a sell.
Sears said in February it was planning to spin off its faster-growing Hometown and Outlet stores to raise $400 million to $500 million, a range it reaffirmed yesterday. The company reported its largest quarterly loss in at least nine years on Feb. 23.
The new company will consist of about 1,240 smaller-format stores, including 944 Hometown locations and 96 Sears Hardware stores. It produced $2.34 billion in sales and $80.9 million in earnings before interest, taxes, depreciation and amortization in its fiscal 2011, according to the filing.
The new unit “has more promise” than the Sears full-line stores, Gilbert said.
Sears fell 1 percent to $53.78 at the close in New York yesterday. The shares (SHLD:US) have gained 69 percent this year.
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