SHLD?

[dcollon]

Article in Barron's over the weekend.

 

Hidden_Value_at_Edward_Lamperts_Sears_Holdings_SHLD_-_Barrons.pdf

[BargainValueHunter]

I like how in BB's letter he compares the valuation of SHLD's assets with what would be the GAAP recorded value of Manhattan at the time it was sold to the Dutch. ;)

[PlanMaestro]

LAMPERT HAS TAKEN CARE TO separate Sears into "guarantor" and "non-guarantor"

subsidiaries, with the former securing the company's $1.2 billion in senior notes due 2018.

Importantly, KCD and a unit housing 125 properties leased to Sears aren't guarantors. The division

signals where most of the value resides in the company.

 

Cliff Orr, an analyst at Privet Fund, a hedge fund in Atlanta focusing on special situations, notes that

loan documents indicate that KCD and other non-guarantor subs generate more than $600 million in

free cash flow annually. Using conservative industry multiples to value their profit stream would

suggest they are worth more than Sears Holdings' current value.

 

Has anyone seen these loan documents or any other evidence of this FCF? It is tricky considering how these brands are intertwined with Sears with little 3rd party sales.

[txlaw]

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/for-all-of-you-sears-holdings-longs!/msg69125/

[JRH]

New presentation by Berkowitz on Sears:

 

http://www.fairholmefunds.com/sites/default/files/120815%20SHLD%20Presentation.pdf

 

Somewhat more of a fluff piece - in my opinion - than the earlier presentations on BAC and AIG.  Still worth seeing.

[JRH]

Read it again - probably not fair to say it is a fluff piece.  Plenty of facts, they just don't add up to a quantified investment thesis the way his other presentations do.

[PlanMaestro]

Lots of Real Estate that is clear (wish he has kept only owned RE in his comparisons though). The co-tenant clause point is nice. Also the interesting lack of discussion of the holdco structure might indicate he is holding some cards close to his chest.

 

But those last three barely supported slides (leadership, liquidity and catalysts), an operations slide that should have been taken out, and no mention of his signature FCF (because it has disappeared) gives the bad feeling of a drifting thesis.

[Rabbitisrich]

Plan, I think that Berkowitz always held a liquidation value thesis first, and only looked at the operating cash in so far as it covered expenses and allowed for breathing room. The March 2009 OID has a good interview [pdf file]: http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Bruce%20Berkowitz/OID%20-%20Bruce%20Berkowitz%20-%203-17-2009.pdf

 

 

[PlanMaestro]

Plan, I think that Berkowitz always held a liquidation value thesis first, and only looked at the operating cash in so far as it covered expenses and allowed for breathing room. The March 2009 OID has a good interview [pdf file]: http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Bruce%20Berkowitz/OID%20-%20Bruce%20Berkowitz%20-%203-17-2009.pdf

 

You are right, the counter evidence is indisputable. I still don't like those slides though. :)

[DCG]

Not a surprise, but SHLD is #6 on AOL's list of the worst companies to work for in America:

 

6. Sears Holdings (Sears/Kmart)

Rating: 2.6/2.5

Number of reviews: 947/376

CEO approval rating: 30% for Louis J. D'Ambrosio

One-year stock price change: down 19%

Employees: 293,000

 

Sears, its stablemate Kmart and several small divisions do business through 2,172 full-line stores and 1,338 specialty retail stores in the United States. Sears Holdings Corp., which is controlled by fund manager Eddie Lampert, holds all these. Lampert recently was given a black eye by the press as he bought a $40 million home on Indian Creek Island, north of Miami. The purchase was made about the same time as Sears made the decision to sell 1,200 stores and close another 173.

 

Sears Holdings has been through several CEOs since Lampert formed it via a merger of Sears and Kmart in 2005. Lou D'Ambrosio was made chief executive in February 2011, replacing long-time interim CEO W. Bruce Johnson. The CEO shuffle has not ended years of failures at Sears as it has struggled against other large chains, particularly Walmart Stores Inc. and Target Corp.

 

Customers will not be surprised to hear that Sears employees think the company's "ancient systems" are in desperate need of repair. In addition to aging infrastructure, retail workers at both companies are unhappy with compensation. Sears employees consistently pointed to low starting salary and even lower annual raises. Kmart employees complained they cannot get enough pay as they are limited to fewer than 32 hours a week with shifts only "four to six hours long." In 2011, Sears' American Customer Satisfaction Index score was a 76 out of 100. Among all department stores and discount retailers, only Walmart received a lower score.

[biaggio]

http://www.marketwatch.com/story/lyondellbasell-industries-set-to-join-the-sp-500-2012-08-29

 

SHLD being deleted from S&P 500. Usually this leads to some selling+ lower price

 

What are folks view of spin off of Sears Hometown and Outlet stores into a separate entity?

-from what I remember from reviewing SEC filing several weeks ago-not profitable + being assigned some debt, so I don t think I will be holding it

-I like it as part of Mr Lamperts "plan" to create shareholder value by carving out the "cancer"...the question is how much of the patient will be left over  (I got this "mental model" on the perfect turnaround model from PlanMaestro's website which is very good- http://variantperceptions.wordpress.com/2012/03/07/munger-on-the-perfect-turnaround/)

[dcollon]

Form 4 from ESL attached

ESL_Form_4.pdf

[stahleyp]

http://www.chicagotribune.com/business/breaking/chi-sears-stock-climbs-on-lampert-purchase-20120906,0,1643908.story

[Guest rimm_never_sleeps]

lampert plans to own more of homestores on a % basis than he does of shld. cancer?

[Matson125]

Rimm,

 

What gives you the impression he will own more hometown?  Is it because he is backstopping the rights offering?  or is there something else I have missed.

 

 

[Guest rimm_never_sleeps]

because he is oversubscribing. because he is trying to make it look bad so nobody buys it. giving him the chance to buy more. because he is doing this in a way that nobody knows about it and nobody cares about it. giving him the chance to buy more. he could create a lot of value starting with a small market cap. esl just bought 2.4m shares for himself. if he had waited just a week to do that deal it would not have included the rights.

[dcollon]

There was a second Form 4 filed the day after the original one and it looks like the shares weren't really bought they were just moved. Comment below is from a different release.  The second form 4 is attached. 

 

"Following the transactions reported herein, the aggregate beneficial ownership of Shares by Mr. Lampert, Partners and their affiliates remained unchanged. As previously disclosed, Partners and Mr. Lampert have no pecuniary interest in the Shares held by ESL Investors L.L.C."

SHLD.pdf

[Guest rimm_never_sleeps]

doesn't that just mean that lampert had de facto control of the shares in the ESL Investor's (ziff) partnership? the language is confusing but I believe that lampert now personally owns these shares where as before they were in a partnership for the ziff family. stock has not sold off on this news.

[txlaw]

because he is oversubscribing. because he is trying to make it look bad so nobody buys it. giving him the chance to buy more. because he is doing this in a way that nobody knows about it and nobody cares about it. giving him the chance to buy more. he could create a lot of value starting with a small market cap. esl just bought 2.4m shares for himself. if he had waited just a week to do that deal it would not have included the rights.

 

Why do you think he's trying to make SHOS look bad?

[dcollon]

Could be Rimm.  It has been very hard to keep track of all the changes.

[AZ_Value]

because he is oversubscribing. because he is trying to make it look bad so nobody buys it. giving him the chance to buy more. because he is doing this in a way that nobody knows about it and nobody cares about it. giving him the chance to buy more. he could create a lot of value starting with a small market cap. esl just bought 2.4m shares for himself. if he had waited just a week to do that deal it would not have included the rights.

 

I have made a conscious decision over the last couple of years to stop trying to guess what Lampert's game plan is with the whole Sears thing because I'm just simply not smart enough and he knows more than me but whatever it is that he knows, it's taken an awful long time to transpire I think.

 

There was a second Form 4 filed the day after the original one and it looks like the shares weren't really bought they were just moved. Comment below is from a different release.  The second form 4 is attached. 

 

"Following the transactions reported herein, the aggregate beneficial ownership of Shares by Mr. Lampert, Partners and their affiliates remained unchanged. As previously disclosed, Partners and Mr. Lampert have no pecuniary interest in the Shares held by ESL Investors L.L.C."

 

I was also looking at this last night trying to make sense out of it.

The obvious fact is that the shares were moved from ESL Partnership to Lampert's personal account, but the reason is what we don't know.

One can speculate that some people in the ESL partnership wanted out and rather than sell the shares to come up with the liquidity to cash them out, Eddie reached in his own pocket and bought the shares himself. But then again this is nothing but pure speculation on my part but these things happen.

 

[gfp]

Couldn't it possibly have something to do with potential changes in the carried interest partnership taxation going forward?  It seems like he has been transferring a lot of long term positions into his personal account over the years and I assumed it was to safeguard their eventual tax treatment as personal capital gains.

[Guest rimm_never_sleeps]

Why do you think he's trying to make SHOS look bad?

 

maybe I used the wrong terminology. he sure isn't highlighting the business. Like all things sears, eddie probably feels it's undervalued and wants to own more of it than other shareholders will. admittedly it's a bite sized chunk for him. and it brings in some liquidity for Sears Holdings. So it's hard to really gauge what he is doing here. I just see that he is doing this when wall street is asleep at the switch and just getting back from the Hamptons. the rights offering period is only 4 days too. so if you don't act you lose the chance to buy the spin off. Regardless, my sense is he shifted his strategy into a higher gear the last few months. He is actively trying to create some value now.

[thomcapital]

I'm not too familar with rights offerings. Does anyone know how Sears Holdings arrived at the $15/shr. ($346M) that will be raised by selling SHOS?

 

What I do remember about rights offerings is what Greenblatt says in his "Stock Market Genius" book: "Buy all rights" (pg. 109). The subtitle on that page says it all.  :)

[Guest rimm_never_sleeps]

pricing a rights offering involves a lot of subjectivity. $346m represents the low end of a valuation range that an IB supplied Lampert. in the end chairman prices the offering based on a variety of factors.