Here’s one way to unload unmanageable debt and try to build for the future – sell a division that’s still attractive to buyers, yet could cause problems down the road. Sears Holdings Corp. CEO Eddie Lampert has put the retailer’s notable appliance brand Kenmore up for sale.
It’s the latest in a string of moves that Sears has taken as it struggles to stay afloat. The Wall Street Journal reports that sales at Sears have declined 60 percent over the past decade. Selling the Kenmore brand, and possibly the related home services division, would provide an influx of cash.
Bankruptcy rumors have circulated for more than a year, but the retailer has managed to avoid that by closing hundreds of Kmart and Sears stores nationwide and selling some assets. In 2015, Sears sold 266 closed properties to a real estate investment trust.
Seller and buyer
Lampert may be both the seller and buyer of the Kenmore brand. He has offered to purchase Kenmore through his hedge fund, ESL Investments, Inc., for $400 million. A committee made up of board members is reviewing the proposal.
One sticking point for the sale is a pension shortfall that Sears faces of as much as $1.5 billion. The U.S. government’s Pension Benefit Guaranty Corporation (PBGC) could nix a deal for Kenmore. PBGC, which oversees the pensions of approximately 40 million Americans, has the right to take a percentage of cash from any Kenmore deal because it could get stuck covering the pension shortfall down the road.
Proceeds from a sale of Kenmore would be used to pay interest on loans and keep Sears solvent, but many feel it’s just a matter of time before the retailer musts declare bankruptcy or shut its doors completely.
“The economics of the core business, including the stores, don’t stack up,” Neil Saunders of retail consultancy GlobalData told USA TODAY. “The real estate could be sold off, especially if larger stores could be subdivided into smaller units… The company would, in essence, cease to exist.”
Large and small companies alike face tough decisions when debt becomes unmanageable. If you face tough decisions regarding debtors and cash flow shortages, it’s wise to consult with a knowledgeable bankruptcy attorney.