What's going on?
Sears may have escaped oblivion after its biggest investor submitted a last-minute bid to take over the embattled American department store chain on Wednesday.
What does this mean?
There were limited tears for Sears when the 126-year-old retailer filed for bankruptcy protection back in October. Sears had been performing badly for a while, having last turned a profit in 2010. Despite announcing cost-cutting plans to shutter a third of its stores, none of the US shoppers spending big over the holidays appeared interested in picking up Sears itself.
Sears’ biggest investor – also the company’s chairman and, until October, its CEO – launched an eleventh-hour bid to keep it alive last week. When that was deemed insufficient, the retailer was left with little choice but to apply for permission to flog off its possessions. Then, on Wednesday, an improved offer from the same investor put that “liquidation” process on hold with seconds to spare…
Why should I care?
For markets: There might be controversy to come.
When a company goes under, its assets are split up and sold off so that it can pay some money back to its “secured” lenders – and then, if any remains, its “unsecured” lenders and shareholders. The chairman’s initial offer, which included a controversial debt-for-shares swap, was rejected by Sears because it would have left the retailer short of cash and unable to pay its bills – as well as releasing the chairman from legal investigation into some questionable past deals. The new and improved deal, which includes extra funds, will now be assessed by the company. Sears’ shares are having a rollercoaster ride…
The bigger picture: The retail apocalypse continues.
Sears wouldn’t be the first retailer to go bankrupt recently. Toys R Us and, in the UK, entertainment store HMV are just two recent casualties of the “difficult trading conditions” of people buying more stuff online. And while holiday sales were good for some, Sears may not be the last brand in trouble in 2019.