January 8, 2019 / 3:41 PM / 2 months ago

UPDATE 5-Sears agrees to consider revised Lampert bid

(Updates with court hearing outcome)

By Jessica DiNapoli and Mike Spector

NEW YORK, Jan 8 (Reuters) - Sears Holdings Corp agreed on Tuesday to consider a revised takeover bid from Chairman Edward Lampert, temporarily staving off a liquidation that would have spelled the end of the 126-year-old U.S. department store operator.

Lampert's latest attempt to rescue Sears came after his previous $4.4 billion bid fell short, prompting the retailer to make liquidation preparations ahead of bankruptcy court hearing in New York on Tuesday.

An attorney for Sears told U.S. Bankruptcy Judge Robert Drain that Lampert is expected to submit a revised offer for the retailer, along with a $120 million deposit, by 4 p.m. Eastern on Jan. 9. He did not disclose details of the new offer.

Drain said that Sears will consider Lampert's offer versus a potential liquidation during a bankruptcy auction on Jan. 14.

The development offers new hope that Sears could remain operational, albeit in smaller form, sparing the jobs of many of its 68,000 workers. Were Sears to liquidate its assets, it would become one of the most high-profile victims in the wave of bankruptcies that has swept the retail sector in the last few years, as the explosion in online shopping exacerbates the fierce price competition facing brick-and-mortar stores.

In a stark contrast between e-commerce firms and many physical retailers, Amazon.com Inc became the world's most valuable company for the first time this week, reaching a market capitalization of close to $800 billion.

PREVIOUS NEGOTIATIONS

A main point of contention in the negotiations between Lampert and Sears previously centered on whether Lampert's bid fully addressed the bankruptcy costs that Sears has racked up, according to sources familiar with the matter.

The costs, which include bills from lawyers and financial advisers, are expected to exceed $200 million, those sources said.

Lampert's bid proposed forgiving $1.3 billion of debt he holds in exchange for ownership of the reconstituted Sears, a bankruptcy maneuver known as a credit bid.

In addition, Lampert wanted a release from legal exposure related to a series of transactions he completed with the retailer before it filed for bankruptcy protection. Those made him the company's biggest creditor, in addition to its largest shareholder.

Lampert's offer did not include putting up cash to back the credit bid. That raised concerns in the negotiations since the maneuver might not be allowed in court, the sources said, given ongoing investigations of Lampert's pre-bankruptcy deals, which the hedge fund manager maintains were proper.

Unsecured creditors have pushed for Sears to liquidate, partially because they contend they will realize a better financial recovery if it does. Those creditors, which include Sears landlords and bondholders, have also questioned Lampert's pre-bankruptcy transactions with the retailer.

Sears' bankruptcy, which includes discount chain Kmart, followed a decade of revenue declines, hundreds of store closures, and years of deals by billionaire Lampert in an attempt to turn around the company he put together in 2005 through an $11 billion deal.

Sears dates back to the late 1880s and its mail-order catalogs. Merchandise from toys, medicine, gramophones, automobiles, kit houses and tombstones made it the Amazon of its time.

The iconic retailer gradually lost its shine, however, as consumers turned to e-commerce and brick-and-mortar rivals such as Walmart Inc and Target Corp.

Lampert had pledged to restore Sears to its glory days, when it owned the tallest building in the world as well as a radio station and Allstate insurance.

But critics say Lampert let the stores deteriorate over the years, even as he bought the company's stock and lent it money.

The largest U.S. toy retailer, Toys ‘R’ Us, tried to emerge from its 2017 bankruptcy filing but was also forced to liquidate six months later, after creditors lost confidence in its turnaround plan. (Reporting by Jessica DiNapoli and Mike Spector in New York; Editing by Jeffrey Benkoe and Nick Zieminski)

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