SHLDQ - Sears Holdings Corp

[T-bone1]

I apologize if this has already been posted and discussed, but I found this short presentation to be very helpful with regard to some of the issues that have been raised:

 

http://www.searsholdings.com/invest/docs/Sears_Re_February_2012.pdf

 

-t-bone1

 

What is confusing here is that KCD IP is owned by the sears and KMart retail subs. This means if these two subs go down, the liability holders may claim on the equity interest of KCD IP. Am I wrong here?

 

You are correct that the liability holders have a claim on the equity of KCD IP, but Sears Re has a lien on the assets, which must be paid off before the equity in KCD IP has any value . . .  So in effect, the assets (or at least the portion of them on which there is a lien) are bankruptcy remote.

[FCharlie]

Berkowitz 13F is out.

 

Looks like he added over 800,000 more SHLD shares in Q2

 

 

Total shares at end of quarter 20,392,973

[FCharlie]

Lampert's 13F is out:

 

He's down to only four positions.

 

Sears Holdings

Sears Hometown

AutoNation

Gap

 

And his AutoNation & GAP positions are shrinking.

[FCharlie]

Berkowitz has been adding SHLD shares every quarter for nearly two years.

 

 

Feb 2012:      16,108,492

 

May 2012:        16,813,480

 

Aug 2012:        16,829,880

 

Nov 2012:        16,934,080

 

Feb 2013:        18,146,573

 

May 2013:        19,508,773

 

Aug 2013:        20,392,973

 

 

[Guest hellsten]

Here's a list of estimates on the value of Sears real estate:

$3.6 billion (2012) http://www.turnaround.org/cmaextras/15-Sears-Holding.pdf

$8.5 billion (2007, Bill Ackman) http://online.barrons.com/article/SB119283873785565563.html

$16-60/share (2013, Credit Suisse) http://www.institutionalinvestorsalpha.com/Article/3207208/Lamperts-ESL-Boasts-Soaring-Stock-Portfolio.html

$20.4 billion (2006, Morgan Stanley) http://www.chicagobusiness.com/article/20051231/ISSUE01/100025084/is-sears-chief-set-to-tap-real-estate

$31-39 billion (2013) http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

$80-90/share (2009, Bruce Berkowitz) http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Bruce%20Berkowitz/OID%20-%20Bruce%20Berkowitz%20-%203-17-2009.pdf

 

My guess is that Berkowitz's estimate is the most accurate. He has the incentives to be correct, but his estimate is based on the liquidation of the company so the value shareholders receive is unknown…

[stahleyp]

It looks like Baker Street also had a big chunk of common.

[ERICOPOLY]

It looks like Baker Street also had a big chunk of common.

 

They formed in 2009.  What's their history before that?

 

Is this the same Baker Street?

http://www.bakerstreetcapital.com/

 

[cmattporter]

I thought this was a VI forum?

[stahleyp]

It looks like Baker Street also had a big chunk of common.

 

They formed in 2009.  What's their history before that?

 

Is this the same Baker Street?

http://www.bakerstreetcapital.com/

 

Yeah, I believe that's the site. From what I know, it's ran by Vadim Perelman. He left Force Capital in 2009.  He's a pretty young guy. Around 31 or so I think.

[krazeenyc]

I am lucky that I didn't invest in Sears earlier. (it may turn out that I'm unlucky that I invested in Sears at all).

The reason I didn't get involved with Sears 2009-2012 is that there were other opportunities where the price appreciation looked clearer.

 

But now with everything having risen so much , I think SHLD offers one of the best risk rewards out there today. I expect them to continue to maximize the value of their real estate by redeveloping, re-purposing, selling, and subleasing their real estate. I expect them to try to make sears/shopyourway work with a much much smaller footprint over the long term. (If Sears Hometown stores can work with their cost structure, I don't see why much smaller sears stores wouldn't work as well). 

I expect that they'll continue to close non performing stores, using inventory to pay for store closure costs and pension costs. I expect that what is left will be a profitable smaller retailer with a larger online presence -- how profitable is yet to be determined. I expect them to sell Land's End, but who knows. It looks like they are going to shrink their presence in the electronics market -- which i think is a smart move -- but will be nicely beneficial for BBY for a period of time.

 

What is ESL going to do with the money generated from the real estate over the long term? Stock Buybacks seem hard given the current ownership structure. 54% ESL, 20% Fairholme, 7% baker, % Luke . If the money generated from the real estate is as much as we think it is... what is he going to do with -- that is a BIG question mark.

 

I don't think the guarantor/non-guarantor structure is as wonderful as everyone says (similar to the discussion in FIATY) we'll all have lost if it comes to that.

 

[T-bone1]

I think a number of people have already pointed out that Baker Street doesn't actually own stock . . . they own the majority of the January 2015 expiration $60-$70 call spread on 10,000,000 shares.

 

With regard to buybacks, I agree it will be tough to add significant value because they can't buy back a ton of stock at these levels . . . but for the buyer at these prices (and I have been one), I think the more important question is what price will the shorts pay to cover 14 million shares that are sold short?

 

I also wonder what will happen when Baker Street's counterparty starts to delta hedge their exposure . . .

[texual]

I still think we need a guy who can make Sears work. We need like Walter Whi... no scratch that, Frank Underwood!!!!

 

'Your goddamn right!!!' - WW

 

'Take a step back. Look at the bigger picture.' - FU

 

 

ESL doesn't hold a candle to these guys if they ran the show. Who agrees?

[stahleyp]

I think a number of people have already pointed out that Baker Street doesn't actually own stock . . . they own the majority of the January 2015 expiration $60-$70 call spread on 10,000,000 shares.

 

With regard to buybacks, I agree it will be tough to add significant value because they can't buy back a ton of stock at these levels . . . but for the buyer at these prices (and I have been one), I think the more important question is what price will the shorts pay to cover 14 million shares that are sold short?

 

I also wonder what will happen when Baker Street's counterparty starts to delta hedge their exposure . . .

 

It looks like they own the common as of q2.

[texual]

So it looks like ESL sold a lot of SHOS. Not surprising. He sold 4m GAP, and is about 900m in AN. Looks like hes reduced that name significantly over the past few quarters. He got rid of NFLX, Seagate, all the smaller financial stocks he owned on/off the past few years, he cashed out of orchard. No Genworth, no istar. Nothing is left. Just a bunch of AN that appears like hes going to trim till its gone. No more AZO! He may continue to cash out of SHOS actually. Not sure why he owns GAP with 10m more shares to go but hes made a lot of dough on this name.

 

How does Eddie figure out that after 10 years of completely under performance and stagnant growth that GAP was going to skyrocket soon after he decided to invest? That is what I would really love to know because he seems to have a knack for finding those types of situations. I like his stock picks, they've given me some good returns. Except for SHLD. Thats given me a migraine.

 

So the way I see it, hes going to cash out of AN, sell SHOS, and wind down GPS so long as they continue to make new highs. All thats left is SHLD. His fund is under 3bn in management. I think his partnership is being wound down. I expect any time in the near future that it will be announced that hes no longer running a hedge fund. He will be a full time CEO and chairman of Sears Holdings. And maybe something cool will happen.

 

Side note - Berkowitz seems to have no ideas better than SHLD at the moment. He added to that position and it is his solid #3 investment. Kudos for Mr Fairholme holding onto this sucker since 2005... it would be the only stock he has consistently owned in his portfolio today that he owned for the past 8 years... tells you something. No other stock on there has such a distinction.

 

[ERICOPOLY]

So far I can't talk myself into selling out.  The part about where Eddie claims that net inventory liquidation is funding the store closures is... I believe... just trying to get the message out that closing stores doesn't immediately threaten them.  I can't find another reason why he'd phrase it that way.  This way you could close stores and not be desperate to sell the underlying real estate -- closing the stores does not put a cash pinch on the company that would make them a distressed real estate seller.  It's a good message now that I think of it.

[plato1976]

If Mr. Berkowitz only gives a $80 valuation to SHLD real estate, I am not sure why he's buying

- We have $80 in real estate, $40 or so in brands, $40 or so in receivables, But we have 160 per share debt, so conservatively, we have $0 net value left ...

 

 

Here's a list of estimates on the value of Sears real estate:

$3.6 billion (2012) http://www.turnaround.org/cmaextras/15-Sears-Holding.pdf

$8.5 billion (2007, Bill Ackman) http://online.barrons.com/article/SB119283873785565563.html

$16-60/share (2013, Credit Suisse) http://www.institutionalinvestorsalpha.com/Article/3207208/Lamperts-ESL-Boasts-Soaring-Stock-Portfolio.html

$20.4 billion (2006, Morgan Stanley) http://www.chicagobusiness.com/article/20051231/ISSUE01/100025084/is-sears-chief-set-to-tap-real-estate

$31-39 billion (2013) http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

$80-90/share (2009, Bruce Berkowitz) http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Bruce%20Berkowitz/OID%20-%20Bruce%20Berkowitz%20-%203-17-2009.pdf

 

My guess is that Berkowitz's estimate is the most accurate. He has the incentives to be correct, but his estimate is based on the liquidation of the company so the value shareholders receive is unknown…

[T-bone1]

I think a number of people have already pointed out that Baker Street doesn't actually own stock . . . they own the majority of the January 2015 expiration $60-$70 call spread on 10,000,000 shares.

 

With regard to buybacks, I agree it will be tough to add significant value because they can't buy back a ton of stock at these levels . . . but for the buyer at these prices (and I have been one), I think the more important question is what price will the shorts pay to cover 14 million shares that are sold short?

 

I also wonder what will happen when Baker Street's counterparty starts to delta hedge their exposure . . .

 

It looks like they own the common as of q2.

 

You are correct.  It looks like they added 1.5 million shares to their existing call position

[muscleman]

I apologize if this has already been posted and discussed, but I found this short presentation to be very helpful with regard to some of the issues that have been raised:

 

http://www.searsholdings.com/invest/docs/Sears_Re_February_2012.pdf

 

-t-bone1

 

What is confusing here is that KCD IP is owned by the sears and KMart retail subs. This means if these two subs go down, the liability holders may claim on the equity interest of KCD IP. Am I wrong here?

 

You are correct that the liability holders have a claim on the equity of KCD IP, but Sears Re has a lien on the assets, which must be paid off before the equity in KCD IP has any value . . .  So in effect, the assets (or at least the portion of them on which there is a lien) are bankruptcy remote.

 

Oh! Thank you! This structure is so complex that I didn't figure this out myself. Shame on me.  :'(

I will look into how much the lien is. I assume that should cover all the value of the assets?

 

[texual]

I'm not sure whether this is a good time to buy shares or not though. I'd feel better if some of you guys shared whether you are buying or waiting for a specific target. I don't know if this is a good price or not since we don't know whether ESL will do anything this year or if Berkowitz is done buying, etc.

 

I don't want to get this at 41/42 and watch it go to 30 or something. Anyone have specific thoughts on the 42 dollar price range?

 

 

I'd also like to add that my gun powder has been drying in storage for a year. And my trigger finger is itchy.

[JRH]

I'm not sure whether this is a good time to buy shares or not though. I'd feel better if some of you guys shared whether you are buying or waiting for a specific target. I don't know if this is a good price or not since we don't know whether ESL will do anything this year or if Berkowitz is done buying, etc.

 

I don't want to get this at 41/42 and watch it go to 30 or something. Anyone have specific thoughts on the 42 dollar price range?

 

 

I'd also like to add that my gun powder has been drying in storage for a year. And my trigger finger is itchy.

 

Given that 42 is the answer to the ultimate question of life, the universe, and everything, I'd say you could do much worse than buying here.

 

FD: No position.

[ScottHall]

I apologize if this has already been posted and discussed, but I found this short presentation to be very helpful with regard to some of the issues that have been raised:

 

http://www.searsholdings.com/invest/docs/Sears_Re_February_2012.pdf

 

-t-bone1

 

What is confusing here is that KCD IP is owned by the sears and KMart retail subs. This means if these two subs go down, the liability holders may claim on the equity interest of KCD IP. Am I wrong here?

 

You are correct that the liability holders have a claim on the equity of KCD IP, but Sears Re has a lien on the assets, which must be paid off before the equity in KCD IP has any value . . .  So in effect, the assets (or at least the portion of them on which there is a lien) are bankruptcy remote.

 

Oh! Thank you! This structure is so complex that I didn't figure this out myself. Shame on me.  :'(

I will look into how much the lien is. I assume that should cover all the value of the assets?

 

Don't forget that Holdings has the $1.2 billion note and the SRAC/Kmart credit line ahead of you, too.

[valueorama]

I'm not sure whether this is a good time to buy shares or not though. I'd feel better if some of you guys shared whether you are buying or waiting for a specific target. I don't know if this is a good price or not since we don't know whether ESL will do anything this year or if Berkowitz is done buying, etc.

 

I don't want to get this at 41/42 and watch it go to 30 or something. Anyone have specific thoughts on the 42 dollar price range?

 

 

I'd also like to add that my gun powder has been drying in storage for a year. And my trigger finger is itchy.

 

Just wanted to add my 2 cents.

 

I wouldn't advise you to buy Sears based on what you said. If you dont/cant get a clear reason as to why you think the company is cheap, you shouldnt be buying it.

What will you do when price goes to 30? what will you do if price goes to 20? will you add or panic and sell? you will get doubts better clear your doubts before investing.

 

[WarrenWatsa]

One thing to watch out for is if SHLD keeps bleeding cash.

 

Then either an asset sale or dilution is coming.

 

I see similarities between SHLD and JCP. Both have great underlying asset value, mainly in the form of real estate and to a lesser extent brand equity.

 

I see these as purely asset plays...any earnings are a bonus.

 

Cash burn is something to watch.

[ERICOPOLY]

Regarding Berkowitz'  public comments on his investments...

 

Take a look at "Case Study I", where he goes over Bank of America.  Does he even make any mention anywhere about legal risks for the bank?

 

So, take that for what it's worth.  He doesn't perhaps discuss all the bad risks that he knows about.

 

[Luke 532]

I'm not sure whether this is a good time to buy shares or not though. I'd feel better if some of you guys shared whether you are buying or waiting for a specific target. I don't know if this is a good price or not since we don't know whether ESL will do anything this year or if Berkowitz is done buying, etc.

 

I don't want to get this at 41/42 and watch it go to 30 or something. Anyone have specific thoughts on the 42 dollar price range?

 

I'd also like to add that my gun powder has been drying in storage for a year. And my trigger finger is itchy.

 

Personally, I bought a little "early" (and was comfortable with it) due to the very real possibility of a short squeeze.  If Lampert so much as hints at permanent capital in the upcoming conference call that could ignite a strong rally (and perhaps a gap up where you can't get in at the low-40's).  Do I think he will mention anything like that?  No, I don't.  But the reason I was willing to "overpay" (average is $49-ish) is that I don't mind sacrificing $10 or so in share price (buying at $39) to potentially miss out on a ton of upside.  At the end of the day, anybody buying in the low-$40's is going to be extremely happy.  Is the potential short squeeze gap up likely in the near future?  Probably not.  But I don't want to feel extremely foolish for trying to squeeze out an extra nickel on my entry and, in turn, give up some very serious dollar bills.

 

One way you could play it is with far OTM call options.  If there is a squeeze you'll get paid.  If there's not a squeeze and the stock drops then it works out well as long as the difference of the lower future stock price and the current stock price exceeds the amount lost on the call options.

 

But there is no guarantee, of course, that the stock is going to continue going down... we've been in a $40-$80 range for awhile.  At the end of the day, $42 is an excellent price.  I haven't decided whether I'll add or not as it's already a huge position for me, but Lampert cutting his holdings from 10 or 12 companies down to 4, along with a million other reasons I've posted on this message board, tells me that this may very well be his "Berkshire moment" unfolding before our eyes and it's starting to pick up steam.