SHLDQ - Sears Holdings Corp

[Sunrider]

Sears to sell back two Toronto leases for $191 million.

 

If it's helpful in valuing Sears real estate assets, these stores are at the three biggest retail mall locations in Toronto.  This is the high end of the valuation.  Without knowing the specifics of the lease terms, it's not possible to compute value.  Nordstrom's will be moving in to two of them.

 

It is interesting to note the incentives here too.  The mall owners would prefer a shiny new Nordstroms to a tired (in the consumers mind) Sears in the same location. 

 

Initially this all sounds good for SHLD but when a retailer is selling off prime retail locations, Munger's words ring in my ears ". . . and then what".

 

Yes this sounds a little disturbing to me at first, but after a second thought, this is actually not a bad thing. The department store business will continue to decline in the near future, and Amazon will put on pressure for all retailers, so the sooner the exit, the better, especially if they can get a sweat deal.

Regarding the other properties outside of key locations, data center is not a bad idea if the infrastructure for power and cable exists. :)

 

Another way to look at it: roughly 19% of SCC's market cap in cash. Now, how many more of these prime locations there are, I don't know, but I'd expect a development like Burnaby to be worth in the billion rather than million range.

 

C.

[muscleman]

valuecfa, I think your expectation is correct:

http://www.bloomberg.com/video/lampert-feels-sears-struggle-in-client-redemptions-1A1WaGGwSYi9Wj3wRRa4tA.html

 

And this happened before too.

http://articles.chicagotribune.com/2012-01-05/business/chi-lampert-cuts-autozone-stake-as-he-backs-sears-20120105_1_autozone-edward-lampert-autonation-shares

 

I think this can urge Eddie to hurry up and not to wait and swamp the shareholder base any longer.

What is more interesting is why he gave up AN and AZ shares to meet redemptions. This will leave remaining shareholders with even higher exposure to SHLD.

I think he is very confident about SHLD, and I believe most fund managers will make decisions that are more friendly to remaining clients than the clients that want to get out.

 

I want to point out that the share price of SHLD will affect the fundamentals in the following ways:

1. If it drops too much, Eddie will feel the heat to transform SHLD.

2. If it drops too much, Eddie may face more redemptions and if he is forced to sell SHLD, the price will tank and he will face more redemptions. If he is holding his personal SHLD stakes in a cash account instead of a margin account, then this should be fine because he will still be the largest shareholder and controls the company. But if he has a margin account, then this will be a big problem as he will be forced to liquidate his SHLD holdings and forced to exit as CEO and chairman.

 

I am wondering if there is a way to figure out if he uses margin account to hold the SHLD shares like the crazy ex CEO of CHK did right before the nat gas collapse? :)

[FCharlie]

If he is holding his personal SHLD stakes in a cash account instead of a margin account, then this should be fine because he will still be the largest shareholder and controls the company. But if he has a margin account, then this will be a big problem as he will be forced to liquidate his SHLD holdings and forced to exit as CEO and chairman.

 

I am wondering if there is a way to figure out if he uses margin account to hold the SHLD shares like the crazy ex CEO of CHK did right before the nat gas collapse? :)

 

People, hedge funds, they've tried to bury Eddie before. Look at Nov 2008. SHLD went from $90 to $27 in about 45 days. Eddie sat back and bought in millions of shares.

 

Any time SHLD drops hard, Eddie buys the shares. Any time there's a liquidity issue, Eddie buys commercial paper. Berkowitz has publicly stated that if SHLD ever has a liquidity problem they should call Fairholme.

 

Basically, these two guys are cornering the stock. I cannot even imagine a scenario where these two guys end up wrong here.

[muscleman]

If he is holding his personal SHLD stakes in a cash account instead of a margin account, then this should be fine because he will still be the largest shareholder and controls the company. But if he has a margin account, then this will be a big problem as he will be forced to liquidate his SHLD holdings and forced to exit as CEO and chairman.

 

I am wondering if there is a way to figure out if he uses margin account to hold the SHLD shares like the crazy ex CEO of CHK did right before the nat gas collapse? :)

 

People, hedge funds, they've tried to bury Eddie before. Look at Nov 2008. SHLD went from $90 to $27 in about 45 days. Eddie sat back and bought in millions of shares.

 

Any time SHLD drops hard, Eddie buys the shares. Any time there's a liquidity issue, Eddie buys commercial paper. Berkowitz has publicly stated that if SHLD ever has a liquidity problem they should call Fairholme.

 

Basically, these two guys are cornering the stock. I cannot even imagine a scenario where these two guys end up wrong here.

 

This is true. Having Bruce as a backup is always good. I am re-reading George Soros' The Alchemy of Finance recently, and I start to estimate some theory for SHLD. I don't think this fits his classic boom/bust model, in which the stock price in turn enhances/weakens the fundamentals. But he did mention there were hated stocks whose price does not affect the fundamentals, and he said these kinds of stocks should be bought when it is most hated. I think SHLD belongs to this category.

[Guest wellmont]

If he is holding his personal SHLD stakes in a cash account instead of a margin account, then this should be fine because he will still be the largest shareholder and controls the company. But if he has a margin account, then this will be a big problem as he will be forced to liquidate his SHLD holdings and forced to exit as CEO and chairman.

 

I am wondering if there is a way to figure out if he uses margin account to hold the SHLD shares like the crazy ex CEO of CHK did right before the nat gas collapse? :)

 

People, hedge funds, they've tried to bury Eddie before. Look at Nov 2008. SHLD went from $90 to $27 in about 45 days. Eddie sat back and bought in millions of shares.

 

Any time SHLD drops hard, Eddie buys the shares. Any time there's a liquidity issue, Eddie buys commercial paper. Berkowitz has publicly stated that if SHLD ever has a liquidity problem they should call Fairholme.

 

Basically, these two guys are cornering the stock. I cannot even imagine a scenario where these two guys end up wrong here.

 

eddie is trying to drain the swamp. he will take your cheap shares. he doesn't really care about the other shareholders. he's not exactly Buffett who wants every shareholder to get a fair shake. Eddie has a master plan. but you have to have the patience of a saint to stay invested to see if it ever pans out.  But things have not gone according to plan. he's on plan b or c now. He has a low priced stock. but  SHLD is in no position to buy it in. He doesn't have the liquidity. So things are definitely not going well. Put a few drinks in BB and I bet he tells you an interesting story about what it's like to be partners with this guy.

[Liberty]

eddie is trying to drain the swamp. he will take your cheap shares. he doesn't really care about the other shareholders. he's not exactly Buffett who wants every shareholder to get a fair shake. Eddie has a master plan. but you have to have the patience of a saint to stay invested to see if it ever pans out.  But things have not gone according to plan. he's on plan b or c now. He has a low priced stock. but  SHLD is in no position to buy it in. He doesn't have the liquidity. So things are definitely not going well. Put a few drinks in BB and I bet he tells you an interesting story about what it's like to be partners with this guy.

 

Sorry if this has already been discussed ad nauseam, I still need to read all that's been written here on SHLD, but what if Eddie (and Berkowitz) decide to take SHLD private.. Why wouldn't they just do it at whatever low share price they can get? Wouldn't that be a pretty bad outcome for small shareholders but great for them (since they can then keep trying to monetize the value there -- why do they need to be public to do that?)?

[FCharlie]

 

 

eddie is trying to drain the swamp. he will take your cheap shares. he doesn't really care about the other shareholders. he's not exactly Buffett who wants every shareholder to get a fair shake. Eddie has a master plan. but you have to have the patience of a saint to stay invested to see if it ever pans out.  But things have not gone according to plan. he's on plan b or c now. He has a low priced stock. but  SHLD is in no position to buy it in. He doesn't have the liquidity. So things are definitely not going well. Put a few drinks in BB and I bet he tells you an interesting story about what it's like to be partners with this guy.

 

If Eddie really didn't care about shareholders he would have, at a minimum, paid himself during the decade he's been at this. As Chairman of the board he's taken zero cash and zero stock. He controls the company. He could pay himself anything he wants and there's nothing anyone can do about it. So really... Do you think he truly doesn't care about other shareholders?

 

And how do you figure he's on plan B or C? What do you think plan A was?  And if Berkowitz has a problem with Eddie why would he have increased his ownership of SHLD quarter after quarter for years?

 

I don't think Sears is that hard to own. Buy it, hold it, sell out of the money calls, sell out of the money puts, and keep waiting.  It's fascinating to watch and fascinating to own.

[jeffmori7]

eddie is trying to drain the swamp. he will take your cheap shares. he doesn't really care about the other shareholders. he's not exactly Buffett who wants every shareholder to get a fair shake. Eddie has a master plan. but you have to have the patience of a saint to stay invested to see if it ever pans out.  But things have not gone according to plan. he's on plan b or c now. He has a low priced stock. but  SHLD is in no position to buy it in. He doesn't have the liquidity. So things are definitely not going well. Put a few drinks in BB and I bet he tells you an interesting story about what it's like to be partners with this guy.

 

Sorry if this has already been discussed ad nauseam, I still need to read all that's been written here on SHLD, but what if Eddie (and Berkowitz) decide to take SHLD private.. Why wouldn't they just do it at whatever low share price they can get? Wouldn't that be a pretty bad outcome for small shareholders but great for them (since they can then keep trying to monetize the value there -- why do they need to be public to do that?)?

 

Liberty, I ask quite the same question a moment ago. It's on the thread here : http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg102635/#msg102635. You can read some answers below, but essentially, people seem to think Lampert respects the shareholders and that if you're cost basis is lower than Berkowitz, there is no danger...I would also like to hear more about that possibility.

[Rabbitisrich]

 

Liberty, I ask quite the same question a moment ago. It's on the thread here : http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg102635/#msg102635. You can read some answers below, but essentially, people seem to think Lampert respects the shareholders and that if you're cost basis is lower than Berkowitz, there is no danger...I would also like to hear more about that possibility.

 

Check out the link below. It's a good retelling of Lampert's attitude when he was trying to buy the company on the cheap. I don't know the technicalities for SHLD minority owner rights, but Lampert's respect for minority shareholders probably isn't relevant.

 

One cautionary about SCC is Lampert's 2006 bid at $16.86 CAD. At the time, Bill Ackman led the counter charge. The OSC's ruling showed how Lampert played hardball with Genuity, the provider of the fair value opinion, and with Pershing Square: http://www.osc.gov.on.ca/documents/en/Proceedings-RAD/rad_20060808_searscanada.pdf

[Liberty]

Liberty, I ask quite the same question a moment ago. It's on the thread here : http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg102635/#msg102635. You can read some answers below, but essentially, people seem to think Lampert respects the shareholders and that if you're cost basis is lower than Berkowitz, there is no danger...I would also like to hear more about that possibility.

 

Thanks.

 

What if Eddie takes it private with Berkowitz (not buying his shares, but the two of them ending up owning the private entity together)? Wouldn't that make Berkowitz's average cost irrelevant for the small shareholder? That might not have been plan A, B, or C, but if over time they get backed into a corner, they might feel it's a way to at least reduce the headaches from being public.

[constructive]

I don't think Sears is that hard to own. Buy it, hold it, sell out of the money calls, sell out of the money puts, and keep waiting.  It's fascinating to watch and fascinating to own.

 

It's hard to own because the company's value has been declining.

 

I wonder if SHLD bulls agree or disagree with that statement.

[ScottHall]

Any of you concerned about minority shareholder rights do have some level of protection from the shareholder appraisal rights statutes. What this more or less says is that if you oppose a merger, you can require the company to buy back your shares at fair value, and that the company must show you how it determines fair value. You provide your own estimate, and then the court decides what to do.

 

Whether or not this is worth the return on invested brain damage and can justify the associated costs or not depends on the size of your position, and as with most things involving the courts and securities valuation, there's no guarantee that the court will value the company in a manner that you consider reasonable. But the option is there.

 

Here's a link to the laws for Delaware, where Sears is incorporated, some commentary by Northwestern and a case study.

 

http://delcode.delaware.gov/title8/c001/sc09/

 

http://www.law.northwestern.edu/lawreview/v105/n4/1635/LR105n4Geis.pdf

 

http://willamette.com/insights_journal/11/summer_2011_5.pdf

[Guest wellmont]

Liberty, I ask quite the same question a moment ago. It's on the thread here : http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg102635/#msg102635. You can read some answers below, but essentially, people seem to think Lampert respects the shareholders and that if you're cost basis is lower than Berkowitz, there is no danger...I would also like to hear more about that possibility.

 

Thanks.

 

What if Eddie takes it private with Berkowitz (not buying his shares, but the two of them ending up owning the private entity together)? Wouldn't that make Berkowitz's average cost irrelevant for the small shareholder? That might not have been plan A, B, or C, but if over time they get backed into a corner, they might feel it's a way to at least reduce the headaches from being public.

 

this has been a terrible investment for bb. and there is no evidence that bb and esl are on friendly terms, or have even met face to face. the last comment on this for the record was they had yet to meet f2f.

[Myth465]

I dont see why Sears gets so much attention.

They have pretty much done nothing since merging with Kmart, and everyone hopes something happens but the CEO never really gives any indication on the "master plan"....

 

Until I see a plan this is buy and hope or hold and pray.

[muscleman]

I dont see why Sears gets so much attention.

They have pretty much done nothing since merging with Kmart, and everyone hopes something happens but the CEO never really gives any indication on the "master plan"....

 

Until I see a plan this is buy and hope or hold and pray.

 

Right. Eddie is pretty quiet so far, but I think he will be forced to take actions as his shareholders in ESL are getting impatient. :)

[bargainman]

I dont see why Sears gets so much attention.

 

Perhaps because their CEO has a 20 year record of 20%(?) plus returns, and is a student of Warren Buffett? :)

[Myth465]

I dont see why Sears gets so much attention.

 

Perhaps because their CEO has a 20 year record of 20%(?) plus returns, and is a student of Warren Buffett? :)

 

Meh, so due to a good 20 year record, you are willing to sit idle invested for another 20 years with no indication on what the magically plan is?

 

Like I said hope and pray.

That only takes you so far, maybe 10 years so far.

 

Eventually you have to ask yourself as the owner of the business, do you know whats going on?

 

I have never been able to answer that with Sears. I have had investments where I think I know whats going on, and am completely wrong. Im not happy about that, but its part of investing. Investing in something where I know I have no clue what the long term plan is, is something I just cant do. Are you a partner or a pawn? I know Eddie will take Bruce's calls, will he take yours, cause he wont publicly tell you the plan even though you own the public company.

 

Eddie may have a great plan, or may have something that looked good 12 years ago but cant be done or no longer makes sense, I dont know. Do you?

 

[bargainman]

I don't which is why I let Bruce invest my SHLD stake while opportunistically writing options/trading.  But I think I know the long term plan/end game...  "make money if possible"  I can't believe that Eddie will let this languish forever or so much that it destroys his record or partners.  He will do something to get the value, it's just a matter of 'will it be too little, too late"?

[Guest hellsten]

Meh, so due to a good 20 year record, you are willing to sit idle invested for another 20 years with no indication on what the magically plan is?

 

If you ask me, there's no need for a magical plan. Incremental improvements would suffice. Eddie Lampert has shown huge amounts of patience with SHLD, which is admirable and not to be looked down on IMHO. Wall Street is, surprisingly enough, not showing any patience with Eddie Lampert. Yes, he has probably neglected Sears, but will he do so forever? No...

 

It's always good to try to see your investments from the other side, so we should also ask ourselves what could kill Sears:

- Amazon and the internet will eat the world, i.e. SHLD can't adapt to a changing world.

- An underfunded pension plan and other liabilities plus a cash shortage:

 

Sears used up $773 million of cash in the last three months, the most for a first quarter since at least 1995, bringing its deficit to $1.32 billion over the past year. That's about $200 million wider than J.C. Penney's shortfall and makes Sears the U.S. department store closest to exhausting its cash.

http://articles.courant.com/2013-05-28/business/hc-sears-corporate-finance-0528-20130528_1_sears-canada-kmart-holding-corp-cash

 

- Eddie and friends kill SHLD by taking the company private to e.g. liquidate it or transform it.

- Housing never recovers and revenue keeps on falling.

 

What else am I missing that could kill Sears?

 

Eventually you have to ask yourself as the owner of the business, do you know whats going on?

 

These are some of the things I see, many of which I don't think Wall Street or other SHLD shorters agree with or are aware of:

- A long-term oriented owner with a track record of success in retail (Autozone and Autonation). Wall Street and the media often claim Eddie doesn't know anything about the retail business.

- 38.22% of float is shorted http://quotes.morningstar.com/stock/s?t=SHLD

- 50% owned by ESL and Bruce Berkowitz.

- Eddie owns >60% and is buying more:

 

"bought over $126 millon worth of the stock at $52.75 a share"

http://beta.fool.com/jonathanyates13/2012/09/17/eddie-lampert-sears/11676/

 

"He already owns 25 million shares and through various partnerships, he has some degree of control over an additional 33.8 million."

http://money.msn.com/top-stocks/post.aspx?post=adf4bdcf-bd16-4b9a-9f07-36b30fca7ce9

 

- Eddie is not selling SHLD even he is forced to:

 

"But with Sears struggling, clients have been pulling money out of ESL. Lampert used the AutoNation shares to satisfy investors who were redeeming their interests in the fund, filings said."

http://www.autonews.com/apps/pbcs.dll/article?AID=/20130614/RETAIL07/130619905/autonations-largest-shareholder-reduces-stake-to-32#axzz2WSin2iQt

 

- lots of new ideas being tested to see what sticks, Shop Your Way, data centers, rooftop space leasing, etc.

 

http://www.datacenterknowledge.com/archives/2013/05/23/ubiquity/

 

IMO, you just have to be very smart at testing what works to be successful at this. You already have the assets, people, shops, customers, partners, clients, etc that are needed to perform the tests.

 

- A potential housing recovery, although I wouldn't bet on it.

 

http://www.cnbc.com/id/100589622

 

- Guarantor and non-guarantor subsidiaries worth billions:

 

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

 

- A stock owned by Bruce Berkowitz and Francis Chou

 

- Leases that are expiring and that in some cases can be terminated for cash:

 

http://online.wsj.com/article/SB10001424127887323734304578545511032136042.html (Sears Canada)

 

- Online business model similar to Amazon and Overstock (rewards program, third-party sellers)

 

http://www.businessweek.com/articles/2013-05-29/the-plan-to-make-sears-shoppers-go-digital

 

- 4-5 analysts following the stock… Wall Street can't even spell "Lampert". SHLD articles and comments on e.g. Seeking Alpha that are overly negative and suffering from hindsight bias.

 

If you want you can also add the real estate to the list :D

 

Anyhow, I've listed nothing new so in theory I don't know more than the market should know. It seems you either believe in the future of SHLD, or you don't. I believe SHLD has a future. The market doesn't. The market is probably right if we extrapolate, which it almost always does.

[muscleman]

http://www.chicagotribune.com/business/sns-rt-us-lowes-orchardsupplybre95g03j-20130616,0,3737824.story

 

It seems like OSH will easily find a buyer for its properties. On the other hand, I am a bit confused because I think all the properties are in SHLD's KCP ID subsidiary, and other subs lease from KCP ID.

Maybe OSH and SCC took their own stores along with the spin off?

[fareastwarriors]

http://www.bloomberg.com/news/2013-06-18/lampert-says-he-has-sears-strategy-as-analysts-doubt-it-retail.html

 

Lampert Says He Has Sears Strategy as Analysts Doubt It

[FCharlie]

There is an element of blind faith that Berkowitz always talks about with SHLD.

 

Some will never feel comfortable because they don't know "the plan"

 

Some look at the assets that are being sold and the actions of Lampert & Berkowitz as all they need to feel confident that this will at least not hurt them long term. These two gentlemen keep buying no matter what. Tommy Tisch is involved with a couple million shares as well. Why would three well respected investors continually sink cash into or hold cash in something that is dead?

 

Examples of asset sales:

 

Sears Canada selling two leases for $190 million

 

Sears Canada selling three leases last year for $270 million

 

Sears selling 14 stores last year for almost half a billion cash.

 

Sears closing stores and having it be cash flow positive and gross margin enhancing.

 

Sears saying their warranty business is worth more than half a billion.

 

Sears having $45 per share (at cost) of owned inventory.

 

Sears exploring the possibility of turning stores into data centers that could potentially rent for $7 million annually?

 

People could add to this list if they wish. The point is simple. There seem to be so many things supporting the company that it's hard to see how someone could lose long term. Excluding the pension, SHLD is cash flow positive. Unfortunately, the pension is consuming all free cash flow. Could the business improve? Why not?  Could interest rates rise? Yes. When they do, a 1% change in interest rates will erase $500 million of pension liability. Give me a 4% increase in interest rates and I'll give you SHLD with no pension liability.

 

All that said. For me it goes back to a mix of blind faith in two of the worlds greatest investors and looking at the asset sales as confirmation that what Berkowitz has been saying all along is correct.  It's very hard to see how you lose... And as Bruce Berkowitz would say,  if you're already priced for failure, maybe something good will happen.

[Matson125]

Just to add, there are also the bonds issued by KCD that are 100% owned by SHLD.  The par value is 1.8 billion.

[CorpRaider]

Berkowitz basically says it is selling for a lot less than the tax value of the RE and the CEO is a genius.  Fahgettaboutit!

[Liberty]

Has anyone seen this seeking alpha article? This is quite possibly the most thorough article I have ever seen on Seeking Alpha. http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

 

That was a good read, thanks for posting.