SHLDQ - Sears Holdings Corp

[Luke 532]

Sub-$30 is just ridiculous.  I added a little bit to my already large position today at $29.85 average.

 

It is still roughly the same price as before LE spinoff, even though it sounds like a big bargain.

 

I'm aware.  Add the LE * 0.3 at the time of the spin to the current price.  I still think it is a huge bargain.  Time will tell but I think it is going to be pretty difficult to lose money long-term for those buying around $30.

[merkhet]

Sub-$30 is just ridiculous.  I added a little bit to my already large position today at $29.85 average.

 

How do you decide the price is ridiculous? What if the share price drops to 15 from here and Lampert takes it private at 25?  That seems like a very plausible scenario to me.

 

I suspect that Berkowitz, as a holder of about 23% of the common, would be rather litigious about a going private transaction at $25 a share.

[nkp007]

Sub-$30 is just ridiculous.  I added a little bit to my already large position today at $29.85 average.

 

How do you decide the price is ridiculous? What if the share price drops to 15 from here and Lampert takes it private at 25?  That seems like a very plausible scenario to me.

 

I suspect that Berkowitz, as a holder of about 23% of the common, would be rather litigious about a going private transaction at $25 a share.

 

 

Have we talked about what happens if Lampert and Berkowitz start publicly fighting about Sears? That would be nuts. I have read very little to believe they are cooperating beyond a board seat.

 

[Luke 532]

I made a lot of money, probably a 50-75% IRR, last year to early this year - I consider myself lucky. I am neutral now, neither bullish or bearish.

 

You can add another 5% compounded by mid-January with the $25 strike put premium, and if you get called you can write a call for more premium.  Like falling back to a defensive position and keeping on fighting -- cue the end scene of Saving Private Ryan.  Find a defilade position!  Jackson!

 

The annualized rate on the out-of-the-money puts is far in excess of the burn rate of SYW strategy.  Defensive position... fall back... fight... defensive position... fall back.

 

It's tough to be short too.  The borrow costs... the premium costs... it's a war of attrition between longs and shorts.

 

I did just this today, except with the $20 strike at $1 premium. 5% return in 4 months is pretty damn good, with very minimal risk IMO.

 

Another option, if you're a long-term bull, is to buy the shares and lend them out.  Current Rebate Rate at Interactive Brokers is 14.91%.  More risk, obviously, but you also get to participate in potential upside.

[Kraven]

Sub-$30 is just ridiculous.  I added a little bit to my already large position today at $29.85 average.

 

How do you decide the price is ridiculous? What if the share price drops to 15 from here and Lampert takes it private at 25?  That seems like a very plausible scenario to me.

 

I suspect that Berkowitz, as a holder of about 23% of the common, would be rather litigious about a going private transaction at $25 a share.

 

 

Have we talked about what happens if Lampert and Berkowitz start publicly fighting about Sears? That would be nuts. I have read very little to believe they are cooperating beyond a board seat.

 

I would totally take Berkowitz over Lampert.  He looks like he's kept himself in pretty good shape and he grew up with a pretty rough crowd.  I bet he can handle himself mano a mano.  Lampert has spent the last decade locked in a room or on his yacht.  No way he can take Berkowitz if they start fighting.

[TwoCitiesCapital]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

[Sunrider]

I got excited there for a minute - a Jan 16 25 synthetic costs about $2, owing to the large put premium. Risk-less profits beckon! (short stock at 30). If only the darn borrowing costs weren't so high. Sadly, premiums on the 30 synthetics don't allow for the same with options.... Oh well, back to hoping that Mr. L. starts producing results that lead to a higher stock price soon.

 

C.

[Picasso]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

Nevermind the fact that people are in the stock BECAUSE of Berkowitz. It would probably amount to more than 23 percent of the shares being sold.

[Luke 532]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

I might be wrong but I just don't think $400M being encumbered for 3-5 months is going to change Berkowitz's mind one way or the other.  That would be less than $4 per share on his $150 intrinsic value calculation.  He's been adding a lot the past 3 quarters (increased position 18%+ from 20.758M to 24.673M shares) showing, in my opinion, growing conviction (especially noteworthy that those increases have been since Alvarez was added to the BOD).  Yes, the increase could be due to inflows, but that's still a large change in ownership.

[krazeenyc]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

FWIW, I think Berkowitz has more conviction on SHLD than any member of this forum -- certainly far greater conviction than me.

[Luke 532]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

FWIW, I think Berkowitz has more conviction on SHLD than any member of this forum -- certainly far greater conviction than me.

 

+1

[alertmeipp]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

I might be wrong but I just don't think $400M being encumbered for 3-5 months is going to change Berkowitz's mind one way or the other.  That would be less than $4 per share on his $150 intrinsic value calculation.  He's been adding a lot the past 3 quarters (increased position 18%+ from 20.758M to 24.673M shares) showing, in my opinion, growing conviction (especially noteworthy that those increases have been since Alvarez was added to the BOD).  Yes, the increase could be due to inflows, but that's still a large change in ownership.

 

Perception is reality in short term. So far, this guy does not look to me like he is going to steal the company. All this is I see if a liquidity bridge.

 

All Eddie has to do to clear this mess is to buy some equity. But I am sure he won't. He seems does not care about the share price.

 

 

[elevensecsrt4]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

I might be wrong but I just don't think $400M being encumbered for 3-5 months is going to change Berkowitz's mind one way or the other.  That would be less than $4 per share on his $150 intrinsic value calculation.  He's been adding a lot the past 3 quarters (increased position 18%+ from 20.758M to 24.673M shares) showing, in my opinion, growing conviction (especially noteworthy that those increases have been since Alvarez was added to the BOD).  Yes, the increase could be due to inflows, but that's still a large change in ownership.

 

Perception is reality in short term. So far, this guy does not look to me like he is going to steal the company. All this is I see if a liquidity bridge.

 

All Eddie has to do to clear this mess is to buy some equity. But I am sure he won't. He seems does not care about the share price.

 

I agree with the perception of him not being worried about share price short term, but I think he would be in a harry situation if he bought equity so soon after the loan.  (as to where someone could argue he knew the stock would be depressed and purchased equity soon after the loan news) But hey I'm buying here so I wouldn't mind if he did the same ;D

[peridotcapital]

Sub-$30 is just ridiculous.  I added a little bit to my already large position today at $29.85 average.

 

How do you decide the price is ridiculous? What if the share price drops to 15 from here and Lampert takes it private at 25?  That seems like a very plausible scenario to me.

 

I suspect that Berkowitz, as a holder of about 23% of the common, would be rather litigious about a going private transaction at $25 a share.

 

I'm sure they would team up to take it private. Not sure what options the little fish would have, if any.

[merkhet]

Chad, you know that Berkowitz owns about 15 million shares in his mutual funds, right? How exactly would that work for his mutual fund investors?

 

He could go for appraisal rights. I happen to know that he has some good lawyers. :)

[TwoCitiesCapital]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

I might be wrong but I just don't think $400M being encumbered for 3-5 months is going to change Berkowitz's mind one way or the other.  That would be less than $4 per share on his $150 intrinsic value calculation.  He's been adding a lot the past 3 quarters (increased position 18%+ from 20.758M to 24.673M shares) showing, in my opinion, growing conviction (especially noteworthy that those increases have been since Alvarez was added to the BOD).  Yes, the increase could be due to inflows, but that's still a large change in ownership.

 

I said if it's a pattern of things to come. I know Berkowitz isnt going to sell on this news but what if come mid-2015 theres a $4B deal done that impairs real estate and the company is still burning hundreds of millions ever quarter with more debt and less equity. My only point is that we've come to a place where we're beginning to threaten the central thesis of the second largest shareholder in a low liquidity environment.

[peridotcapital]

Chad, you know that Berkowitz owns about 15 million shares in his mutual funds, right? How exactly would that work for his mutual fund investors?

 

He could go for appraisal rights. I happen to know that he has some good lawyers. :)

 

Mutual funds invest in private tech startups nowadays. They are not prohibited from owning assets that aren't traded on the major exchanges. Even if there are limits as to how much of AUM can be private shares, SHLD comprises only ~7% of FAIRX.

 

I think it would all depend (legally) on what the company looked like at the time. A similar configuration to today is a lot different from a legal perspective than a real estate operation where values are more readily attainable. Just on this board you have people who think today's $8 billion enterprise value is so low that it's "ridiculous" and others who would not touch it because of the cash burn which they would also call "ridiculous."

 

I don't think he will take it private, but still, to assume the little guy could never get screwed here is probably overly dismissive.

[Guest wellmont]

I think the more obvious question is what happens if Berkowitz sells.

 

We're now impairing the real estate with debt. The real estate was his main reason for investing and thwre is the possibility that 400M is now encumbered. If this is a pattern of things to come, Berkowitz could decide that his thesis has changed and try to move out. Imagine trying to sell a 23% position with liquidity like this...I'm sure there are ways to mitigate it but we'd all be left holding a seriously stinky bag at prices much lower than today.

 

I might be wrong but I just don't think $400M being encumbered for 3-5 months is going to change Berkowitz's mind one way or the other.  That would be less than $4 per share on his $150 intrinsic value calculation.  He's been adding a lot the past 3 quarters (increased position 18%+ from 20.758M to 24.673M shares) showing, in my opinion, growing conviction (especially noteworthy that those increases have been since Alvarez was added to the BOD).  Yes, the increase could be due to inflows, but that's still a large change in ownership.

 

Perception is reality in short term. So far, this guy does not look to me like he is going to steal the company. All this is I see if a liquidity bridge.

 

All Eddie has to do to clear this mess is to buy some equity. But I am sure he won't. He seems does not care about the share price.

all he has to do to clear this mess is stop losing money and start making it. I don't think that's about to happen either.

[peridotcapital]

 

all he has to do to clear this mess is stop losing money and start making it. I don't think that's about to happen either.

 

Many bulls think that he somehow has control over this and is purposely losing money right now. If there was a lever he could pull to stem the losses, he would. Just operating at breakeven would eliminate the liquidity concerns and the need to borrow against valuable real estate. If that was an option there is no reasonable reason not to go that route at least (not unlike Amazon --- spend every dollar that comes in, but no more). The problem is that he can't stop the bleeding. There is no reason to think third quarter results will be any different than the first two quarters, and the fourth quarter could be the worst SSS quarter of the year (like it was in 2013) because during the holidays the competition steps up their game (read: promotions) even more than they do normally (and they eat Sears' lunch for the first three quarters already). Given that their liquidity has dried up and the losses are showing no signs of easing, the stock can certainly drop further from here.

[merkhet]

Chad, you know that Berkowitz owns about 15 million shares in his mutual funds, right? How exactly would that work for his mutual fund investors?

 

He could go for appraisal rights. I happen to know that he has some good lawyers. :)

 

Mutual funds invest in private tech startups nowadays. They are not prohibited from owning assets that aren't traded on the major exchanges. Even if there are limits as to how much of AUM can be private shares, SHLD comprises only ~7% of FAIRX.

 

I think it would all depend (legally) on what the company looked like at the time. A similar configuration to today is a lot different from a legal perspective than a real estate operation where values are more readily attainable. Just on this board you have people who think today's $8 billion enterprise value is so low that it's "ridiculous" and others who would not touch it because of the cash burn which they would also call "ridiculous."

 

I don't think he will take it private, but still, to assume the little guy could never get screwed here is probably overly dismissive.

 

The restriction is 15% of the portfolio in illiquid & private securities. Let's not forget that he also holds a significant amount of Fannie Mae & Freddie Mac preferreds, which I believe would also qualify as illiquid securities. I believe he would be unhappy in having to choose between Fannie & Sears in such an instance.

 

Please show me where I said that the little guy could never get screwed. I appreciate the fact that you are a pretty consistent foil on this thread, but you needn't put words in my mouth in the process.

 

The only things I've said about this are that (1) Berkowitz would probably be unhappy with a take private transaction, and (2) investors have appraisal rights. I don't understand how you get to investors could never get screwed from my pointing out that investors have tools at their disposal.

[CorpRaider]

To me the bottom line is that it is quite disturbing that he was either unable or unwilling to obtain a (relatively) small bridge loan on equal or similar terms from a third party lender.

[Picasso]

Chad, you know that Berkowitz owns about 15 million shares in his mutual funds, right? How exactly would that work for his mutual fund investors?

 

He could go for appraisal rights. I happen to know that he has some good lawyers. :)

 

Mutual funds invest in private tech startups nowadays. They are not prohibited from owning assets that aren't traded on the major exchanges. Even if there are limits as to how much of AUM can be private shares, SHLD comprises only ~7% of FAIRX.

 

I think it would all depend (legally) on what the company looked like at the time. A similar configuration to today is a lot different from a legal perspective than a real estate operation where values are more readily attainable. Just on this board you have people who think today's $8 billion enterprise value is so low that it's "ridiculous" and others who would not touch it because of the cash burn which they would also call "ridiculous."

 

I don't think he will take it private, but still, to assume the little guy could never get screwed here is probably overly dismissive.

 

The restriction is 15% of the portfolio in illiquid & private securities. Let's not forget that he also holds a significant amount of Fannie Mae & Freddie Mac preferreds, which I believe would also qualify as illiquid securities. I believe he would be unhappy in having to choose between Fannie & Sears in such an instance.

 

Please show me where I said that the little guy could never get screwed. I appreciate the fact that you are a pretty consistent foil on this thread, but you needn't put words in my mouth in the process.

 

The only things I've said about this are that (1) Berkowitz would probably be unhappy with a take private transaction, and (2) investors have appraisal rights. I don't understand how you get to investors could never get screwed from my pointing out that investors have tools at their disposal.

 

I don't think he was saying you were implying that.  I have brought up this point a couple times and here are the responses I get:

 

1) Berkwitz will never let it happen.

2) Lampert mentioned previously that people were able to participate in other holdings such as AZO.

 

I think people forget that is it the job of both Lampert and Berkowitz to do what is in the best interest of their investors.  If the share price drops low enough, I don't know what protection there is for the small investors outside those funds.

 

 

[merkhet]

And my response to that was appraisal rights...

 

...and, again, at this point, I think Berkowitz busts his 15% limit w/ his preferred holdings.

[peridotcapital]

Chad, you know that Berkowitz owns about 15 million shares in his mutual funds, right? How exactly would that work for his mutual fund investors?

 

He could go for appraisal rights. I happen to know that he has some good lawyers. :)

 

Mutual funds invest in private tech startups nowadays. They are not prohibited from owning assets that aren't traded on the major exchanges. Even if there are limits as to how much of AUM can be private shares, SHLD comprises only ~7% of FAIRX.

 

I think it would all depend (legally) on what the company looked like at the time. A similar configuration to today is a lot different from a legal perspective than a real estate operation where values are more readily attainable. Just on this board you have people who think today's $8 billion enterprise value is so low that it's "ridiculous" and others who would not touch it because of the cash burn which they would also call "ridiculous."

 

I don't think he will take it private, but still, to assume the little guy could never get screwed here is probably overly dismissive.

 

The restriction is 15% of the portfolio in illiquid & private securities. Let's not forget that he also holds a significant amount of Fannie Mae & Freddie Mac preferreds, which I believe would also qualify as illiquid securities. I believe he would be unhappy in having to choose between Fannie & Sears in such an instance.

 

Please show me where I said that the little guy could never get screwed. I appreciate the fact that you are a pretty consistent foil on this thread, but you needn't put words in my mouth in the process.

 

The only things I've said about this are that (1) Berkowitz would probably be unhappy with a take private transaction, and (2) investors have appraisal rights. I don't understand how you get to investors could never get screwed from my pointing out that investors have tools at their disposal.

 

As Picasso suggested, I was not singling out you with that statement (sorry if it seemed otherwise). I was responding to a general idea that permeates through many comments on this thread.

[heth247]

 

I think people forget that is it the job of both Lampert and Berkowitz to do what is in the best interest of their investors.  If the share price drops low enough, I don't know what protection there is for the small investors outside those funds.

 

Actually NO.  Please refer to Martin Whiteman's  recent book "Modern Security Analysis", Chapter 12, "The Significance (or Lack of Significance) of Market Performance".

 

For the control shareholders (like Lampert and Berkowitz), their timeline is different than the outside passive minority investors (OPMI). Market prices are considerably less important to the control shareholders than to the OPMI. The control sharesholder (true owners of the company)  pay more attention to the economics and long term benefits of the business than the short term share price.