peridotcapital Posted February 7, 2014 Share Posted February 7, 2014 Screen print of SHLD debt. Notice HoldCo debt is trading above 90.... there is a theory out there that he will bankrupt the SRAC subsidiary while keeping the holdco intact. But I don't think he does that. Because even if he just puts that one sub in CH 11, the media is going to crucify him and all you will read is "Sears is going bankrupt", even though technically that would be false. And this negative media exposure would send a very bad message to vendors, creditors, and customers, creating a negative feedback loop. If this theory has any credence, the SRAC debt may be undervalued. I have the same theory and own the 2017 SRAC debt accordingly. Bankrupting SRAC makes no sense to me given the small amount of debt they have and how the maturities are staggered ($43M in 2017, $69M in 2027, $72M in 2028, and $116M in 2032). I just don't see the upside if you factor in the negative press. His borrowing costs go up right away if he shows he is willing to BK a subsidiary just to avoid paying $43M back. Link to comment Share on other sites More sharing options...
peridotcapital Posted February 7, 2014 Share Posted February 7, 2014 I would be careful with this line of thinking. Lampert has shown himself relatively immune to such external influences. He structured the SRAC debt to protect the holding company, for a reason. Rumor is that he is already factoring receivables anyway. I don't think customers would care one way or another at this point. The SRAC debt was issued long before Eddie ever arrived on the scene. Link to comment Share on other sites More sharing options...
JSArbitrage Posted February 7, 2014 Share Posted February 7, 2014 According to that standard his investment in AZO was DOA too until 2006. He is a patient long-term owner. Edit: I would add AN to that as well - DOA until 2010. Um, what? Lampert's investments in AZO and AN were pretty much an immediately success. The fundamentals got better and the stock soared. Here is an AZO article from 2001. http://www.bizjournals.com/memphis/stories/2001/12/10/story1.html?page=all Neither AZO nor AN were/are anything like SHLD. Under Lamperts, the business fundamentals have been getting worse and have surprised him by his own admission. Link to comment Share on other sites More sharing options...
enoch01 Posted February 7, 2014 Share Posted February 7, 2014 I would be careful with this line of thinking. Lampert has shown himself relatively immune to such external influences. He structured the SRAC debt to protect the holding company, for a reason. Rumor is that he is already factoring receivables anyway. I don't think customers would care one way or another at this point. The SRAC debt was issued long before Eddie ever arrived on the scene. Oh yeah, you're right! Oops. Link to comment Share on other sites More sharing options...
wisdom Posted February 7, 2014 Share Posted February 7, 2014 He held onto AZO shares till 2013. So what were his returns between 1999 to 2006? What happened in the last few years? Where was all the money made? In 2001 or after 2010? Link to comment Share on other sites More sharing options...
wisdom Posted February 7, 2014 Share Posted February 7, 2014 I am not saying AZO or AN are anything like SHLD. Just that most inidividuals are not as long term as him. And Buffett said he did not know how to value companies during the tech bubble. At times, individuals give the easiest answer as they cannot be bothered explaining things. Link to comment Share on other sites More sharing options...
Guest wellmont Posted February 7, 2014 Share Posted February 7, 2014 Screen print of SHLD debt. Notice HoldCo debt is trading above 90.... there is a theory out there that he will bankrupt the SRAC subsidiary while keeping the holdco intact. But I don't think he does that. Because even if he just puts that one sub in CH 11, the media is going to crucify him and all you will read is "Sears is going bankrupt", even though technically that would be false. And this negative media exposure would send a very bad message to vendors, creditors, and customers, creating a negative feedback loop. If this theory has any credence, the SRAC debt may be undervalued. I have the same theory and own the 2017 SRAC debt accordingly. Bankrupting SRAC makes no sense to me given the small amount of debt they have and how the maturities are staggered ($43M in 2017, $69M in 2027, $72M in 2028, and $116M in 2032). I just don't see the upside if you factor in the negative press. His borrowing costs go up right away if he shows he is willing to BK a subsidiary just to avoid paying $43M back. in fact hasn't he been retiring this debt? why would he using precious capital to retire debt that's in a subsidiary that he is going to put into ch 11? Link to comment Share on other sites More sharing options...
peridotcapital Posted February 7, 2014 Share Posted February 7, 2014 Screen print of SHLD debt. Notice HoldCo debt is trading above 90.... there is a theory out there that he will bankrupt the SRAC subsidiary while keeping the holdco intact. But I don't think he does that. Because even if he just puts that one sub in CH 11, the media is going to crucify him and all you will read is "Sears is going bankrupt", even though technically that would be false. And this negative media exposure would send a very bad message to vendors, creditors, and customers, creating a negative feedback loop. If this theory has any credence, the SRAC debt may be undervalued. I have the same theory and own the 2017 SRAC debt accordingly. Bankrupting SRAC makes no sense to me given the small amount of debt they have and how the maturities are staggered ($43M in 2017, $69M in 2027, $72M in 2028, and $116M in 2032). I just don't see the upside if you factor in the negative press. His borrowing costs go up right away if he shows he is willing to BK a subsidiary just to avoid paying $43M back. in fact hasn't he been retiring this debt? why would he using precious capital to retire debt that's in a subsidiary that he is going to put into ch 11? I think those tenders were done prior to Eddie's arrival as well... Link to comment Share on other sites More sharing options...
mcliu Posted February 8, 2014 Share Posted February 8, 2014 "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid." - WEB Similarities to Sears? Link to comment Share on other sites More sharing options...
bmichaud Posted February 8, 2014 Share Posted February 8, 2014 I point out holdco debt above 90 because I find it interesting a dying company with such hideous earnings and cash flows and a pension overhang has debt that is barely under par. Seems odd. Link to comment Share on other sites More sharing options...
adesigar Posted February 8, 2014 Share Posted February 8, 2014 "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid." - WEB Similarities to Sears? Hochschild Kohn was the retail subsidiary of Diversified Retailing (Holdings Company) . Buying Diversified Retailing gave Buffett majority control over Blue Chip stamps the same Blue Chip Stamps which eventually bought Sees Candies. Similarities to Sears? Maybe :) Link to comment Share on other sites More sharing options...
muscleman Posted February 8, 2014 Share Posted February 8, 2014 "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid." - WEB Similarities to Sears? Hochschild Kohn was the retail subsidiary of Diversified Retailing (Holdings Company) . Buying Diversified Retailing gave Buffett majority control over Blue Chip stamps the same Blue Chip Stamps which eventually bought Sees Candies. Similarities to Sears? Maybe :) Did you mean that WEB bought this retail holding co, and did some financial engineering to strip off assets like Sees Candies, and then sold the retail holding co for the same price he bought 3 years ago? Yes, this sounds great, but Eddie has been stuck on SHLD for 10 years. This is materially different. It probably means WEB was aggressive and started stripping the assets the first moment when he saw some bad signs. But Eddie just kept doing what he believed in, and kept losing lots of money every year and lots of other investment opportunities. Link to comment Share on other sites More sharing options...
mcliu Posted February 8, 2014 Share Posted February 8, 2014 "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid." - WEB Similarities to Sears? Hochschild Kohn was the retail subsidiary of Diversified Retailing (Holdings Company) . Buying Diversified Retailing gave Buffett majority control over Blue Chip stamps the same Blue Chip Stamps which eventually bought Sees Candies. Similarities to Sears? Maybe :) Wow. My takeaway is exactly the opposite. I think Buffett is trying to emphasize how tough it is to be in the retail business and that the margin of safety that you see in inventory and real estate may be much smaller than you perceive. Link to comment Share on other sites More sharing options...
deadspace Posted February 8, 2014 Share Posted February 8, 2014 He later invested in See's candy which was an entirely seperate business. It was not an asset of the retail investment Link to comment Share on other sites More sharing options...
wisdom Posted February 8, 2014 Share Posted February 8, 2014 I don't see how it matters how many Buffett experiences one quotes. I believe since then Buffett has purchased: Nebraska furniture mart - retail Invested in walmart, costco and tesco. Buffett has also invested in IBM (tech) and BYD (car and tech) after he said the car industry and tech are tough. Every situation is different. Link to comment Share on other sites More sharing options...
adesigar Posted February 8, 2014 Share Posted February 8, 2014 "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid." - WEB Similarities to Sears? Hochschild Kohn was the retail subsidiary of Diversified Retailing (Holdings Company) . Buying Diversified Retailing gave Buffett majority control over Blue Chip stamps the same Blue Chip Stamps which eventually bought Sees Candies. Similarities to Sears? Maybe :) Wow. My takeaway is exactly the opposite. I think Buffett is trying to emphasize how tough it is to be in the retail business and that the margin of safety that you see in inventory and real estate may be much smaller than you perceive. I know what Buffett meant. But providing info only about part of the transaction and the reason for that transaction and the overall return from it gives a false impression that the deal was about Hochschild Kohn and it turned out break even or terrible for Buffett. Buffett bought it for majority control of Blue Chip Stamps control he also got a retail business below book and some extras. Most of us are buying SHLD as one of the biggest commercial Real Estate owners in the world we also get a Retail Business. The difference is for Buffett the the Real Estate was the extra for us the Real Estate is the primary reason to buy SHLD. The people were first-class they weren't Superinvestors like Lampert. I doubt the margin of safety Buffett saw was in the same league as SHLD which at 35-40 its Real Estate being multiples (3x-4x) of current price. Link to comment Share on other sites More sharing options...
Packer16 Posted February 8, 2014 Share Posted February 8, 2014 Has anyone been able to locate the details of the Baker Street analysis. They referenced a briefing "Softer Hard Assets of Sears" I was not able to find. TIA. Packer Link to comment Share on other sites More sharing options...
mcliu Posted February 8, 2014 Share Posted February 8, 2014 I know what Buffett meant. But providing info only about part of the transaction and the reason for that transaction and the overall return from it gives a false impression that the deal was about Hochschild Kohn and it turned out break even or terrible for Buffett. Buffett bought it for majority control of Blue Chip Stamps control he also got a retail business below book and some extras. Most of us are buying SHLD as one of the biggest commercial Real Estate owners in the world we also get a Retail Business. The difference is for Buffett the the Real Estate was the extra for us the Real Estate is the primary reason to buy SHLD. The people were first-class they weren't Superinvestors like Lampert. I doubt the margin of safety Buffett saw was in the same league as SHLD which at 35-40 its Real Estate being multiples (3x-4x) of current price. That's certainly not the situation. The Snowball and Buffett's letters tell a different story. :) Buffett/Munger/Gottesman started DRC to buy Hochschild Kohn and Associated Cotton Shops. They did not buy DRC to own Blue Chip Stamps. Blue Chip Stamps was acquired after and merged with DRC. Nevertheless, the purpose of the post was that most people are investing on the basis that Lampert's a super-genius and he'll be able to sell/re-develop enough real estate in time and save the retail operation to generate a respectable IRR. On the contrary, the historical precedents for large department store turnarounds seem to be few and far in between. I mean, Buffett is just as genius as Lampert, but he wasn't able to make his department store investment, despite all the real estate, inventory and margin of safety.. I don't see how it matters how many Buffett experiences one quotes. I believe since then Buffett has purchased: Nebraska furniture mart - retail Invested in walmart, costco and tesco. Buffett has also invested in IBM (tech) and BYD (car and tech) after he said the car industry and tech are tough. Every situation is different. When you look at WEB's later investments in retail, Costco, Wal-Mart, NFM, they are all in companies with strong competitive advantages. Even IBM and BYD are companies with competitive advantages in tough industries, but what is Sears' competitive advantage? Has anyone been able to locate the details of the Baker Street analysis. They referenced a briefing "Softer Hard Assets of Sears" I was not able to find. TIA. Packer I was looking for this as well, would appreciate it if anyone has a copy to share. Link to comment Share on other sites More sharing options...
alertmeipp Posted February 8, 2014 Author Share Posted February 8, 2014 for all the bulls out there, the real estate has been around since day one and the share price is heading multiple year low. From all we know, EL will be keeping the retail around and monetize the real estate from time to time. Not any different from what he has been doing. So my question to the bulls here is, what will make you give up the waiting and what near to mid term catalyst do you see. I mean the market is all time high, and this trades like all time low. Link to comment Share on other sites More sharing options...
Luke 532 Posted February 8, 2014 Share Posted February 8, 2014 We’re Focused on our Members: A Kmart RVP discusses the company’s transformation http://blog.searsholdings.com/voices-from-the-field/were-focused-on-our-members-a-kmart-rvp-discusses-the-companys-transformation/ Link to comment Share on other sites More sharing options...
bmichaud Posted February 8, 2014 Share Posted February 8, 2014 I have not been able to find the Softer Side presentation. Link to comment Share on other sites More sharing options...
muscleman Posted February 8, 2014 Share Posted February 8, 2014 I visited the local Sears store today, and I saw more people than I did ever before. The parking lot is about 50% occupied. It used to be only like 10-20% occupied. They changed most of the price stickers to LED ones, and these are controlled via the computer directly through wifi connection. I talked to a sales, and he said each costs about $8. It is a good investment because printing a new sticker and manually changing it every week is much more expensive. I am glad to see these good signs, though I am not sure what other Sears and Kmart stores do. Link to comment Share on other sites More sharing options...
peridotcapital Posted February 8, 2014 Share Posted February 8, 2014 We’re Focused on our Members: A Kmart RVP discusses the company’s transformation http://blog.searsholdings.com/voices-from-the-field/were-focused-on-our-members-a-kmart-rvp-discusses-the-companys-transformation/ My favorite part: Throughout my 32 years of tenure with this great brand, our ability to change has been a key component of our success. These kinds of delusional thoughts remind me of Ron Johnson's quotes during the JCP fiasco. They either don't get it, or they do but spend more time trying to convince you otherwise rather than show you results. Revenue is down, margins are down, profits are down, comp sales are down, market share is down, store traffic is down, costs are not down, and they talk like business is good. It's hilarious. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted February 8, 2014 Share Posted February 8, 2014 We’re Focused on our Members: A Kmart RVP discusses the company’s transformation http://blog.searsholdings.com/voices-from-the-field/were-focused-on-our-members-a-kmart-rvp-discusses-the-companys-transformation/ My favorite part: Throughout my 32 years of tenure with this great brand, our ability to change has been a key component of our success. These kinds of delusional thoughts remind me of Ron Johnson's quotes during the JCP fiasco. They either don't get it, or they do but spend more time trying to convince you otherwise rather than show you results. Revenue is down, margins are down, profits are down, comp sales are down, market share is down, store traffic is down, costs are not down, and they talk like business is good. It's hilarious. It's not surprising to find salesmen at a retailer. Link to comment Share on other sites More sharing options...
gg Posted February 9, 2014 Share Posted February 9, 2014 Has anyone been able to locate the details of the Baker Street analysis. They referenced a briefing "Softer Hard Assets of Sears" I was not able to find. TIA. Packer Been looking all over for this, tried contacting Baker Street requesting it, and have emailed many of my contacts in the hedge fund world trying to find it. Seems like Baker Street has not publicly released it. If you do somehow find it, please let me know - I'd love to see it Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now