Sears bankruptcy and the need for transparency
With a renewed $5 billion offer on the table, and a bankruptcy court hearing set for Monday, Sears is preparing its largest-ever post-holiday sale. The embattled retailer could soon be selling itself.
After rejection to his previous $4.4 billion offer, Sears Chairman Eddie Lampert, also manager of the ESL Investments hedge fund, upped his bid for the historic retailer, promising to save tens of thousands of jobs, as reported last week by Reuters.
According to bankruptcy lawyers watching the case, the bid could serve as an important initial offer, called a “stalking horse bid,” for the bankrupt company. From there, additional interested buyers would provide competing bids in an auction process overseen by Judge Robert Drain of the Southern District of New York.
“It’s very, very important that the process is transparent and deliberate,” University of North Carolina Law Professor Melissa Jacoby tells FOX Business, “because it is next to impossible to later overturn a sale order.”
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Generally, in bankruptcies, the company simply sells to the highest bidder, say legal experts. But because bids often “assume certain liabilities” in different ways, the process can require financial analysis, adds Jacoby. It’s not like buying a house, where one bidder offers more cash and gets the property.
“Because the offers are not always on equal footing,” she says, “you sometimes must compare apples and oranges.”
Yet, this all assumes there are multiple offers. The task for many first bidders is to avoid offering a believed full value for the company, in the event other bids follow, while still making the bid “unpalatable for others to beat,” says Northwestern University Law Professor Bruce Markell.
Ultimately, the company’s management – in this case, Sears management – decides which bid to accept. The court approves the sale. According to lawyers, the process can take weeks or months, but for Sears, there could be some urgency to complete the auction more quickly.
“Sears is burning money,” says University of Chicago Law Professor Douglas Baird. “(This is the) proverbial melting ice cube.”
Sears advisers say they will evaluate Mr. Lampert’s offer in court Monday. ESL Investments is already the largest Sears Holdings shareholder.