Sears was facing the possibility of shutting down, until it reached an 11th-hour deal Tuesday to stay open, at least for now.
After two long delays at a morning hearing in bankruptcy court, attorneys for Sears announced it had accepted a revised bid from a hedge fund controlled by Eddie Lampert, the chairman and former CEO of Sears. The deal would keep 425 of the stores open.
Lampert’s $4.4 billion offer does not complete the sale, but rather starts an auction that is due to be completed on January 14. It is still possible that those wishing to shutdown the company will bid more for the assets than Lampert is offering.
Judge Robert Drain still needs to approve the agreement, but called the deal “a good development.”
It gives Sears a chance to survive, which appeared to be slipping way heading into the hearing.
Lampert submitted a bid on December 28 and Sears had until Friday to accept it, but the company didn’t comment before Tuesday’s hearing. That’s because attorneys were working feverishly to get it done.
The deal was reached after days of “virtually round-the-clock negotiations,” Sears attorney Ray Schrock told the court.
The talks continued into Tuesday. A hearing planned for 10 a.m. didn’t actually get underway until after 1 p.m. because attorneys were huddled to discuss details of the bid.
Sears filed for bankruptcy in October, but said it hoped to be able use the process to stay in business. But many retailers end up going bust after filing, despite plans to stay in business. In recent years, Toys “R” Us, RadioShack and Sports Authority have followed that path to the graveyard.
Lampert said he plans to offer jobs to 50,000 Sears and Kmart employees. Under changes in the bid reached in negotiations, he will have until Wednesday afternoon to make a $120 million cash payment.
But it wasn’t immediately clear just how much additional cash Lampert will pay for the assets. It is known he expects the new Sears to borrow $1.3 billion from three leading banks.
He also offered to forgive more than $1 billion in debt he is owed by Sears from earlier loans he made to the company. It was not immediately clear Tuesday how much, if any, debt forgiveness will be included in this revised offer.
An attorney representing businesses and people who are owed money by Sears told the court Tuesday they will still challenge the bid if it turns out that Lampert intends to use forgiveness of any of the debt as part of the offer.
The creditors have argued that forgiveness of his debt should not be accepted as part of the bid, because Lampert loaned Sears the money when he was CEO. The creditors’ attorneys question whether the terms of those loans unduly benefited Lampert and his hedge fund rather than Sears.
Lampert and his hedge fund argue the loans were proper and made to keep Sears alive.
The creditors also have been arguing for months that shutting down Sears was the best course for repaying the greatest amount of the money it owed. In bankruptcy court filings it called Sears previous plans to stay in business “nothing more than wishful thinking ” and “an unjustified and foolhardy gamble with other people’s money.”