Update on Sears Bankruptcy: Court Approves Takeover Bid by ESL Investments

New York, NY | February 8, 2019 – U.S. Bankruptcy Court Judge Robert Drain approved on Thursday a $5.2 billion takeover bid of Sears Holding Corp. by ESL Investments, the hedge fund owned by former Sears Chairman and CEO Edward Lampert. Sears is seeking to close the transaction shortly.

ESL’s bid was the only one which would allow the department store chain to avert liquidation and preserve up to 425 stores and 45,000 jobs. The preservation of jobs was a key consideration in the judge’s decision. The ruling came after several days of hearings and over the strenuous objection of a number of creditors and the Unsecured Creditor’s Committee, who favored liquidation. Because bankruptcy courts have wide discretion on reorganization of companies and disposition of assets, once a company is in reorganization under the bankruptcy laws, its rulings are generally not subject to appeal absent demonstrable fraud or misconduct.

However, there is significant concern by industry experts on whether Sears can be competitive in the current retail environment. Based on testimony during the hearing, ESL could not assure that additional stores would not be closed. In addition, the court clarified that ESL’s bid does not require the company to release Lampert or ESL from liability related to transactions between ESL and Sears prior to the bankruptcy filing. There is also an unresolved disagreement between Sears and ESL about who is responsible for paying for $166 million in inventory purchased by Sears subsequent to its bankruptcy filing. The bankruptcy court did not rule on this issue, however, the judge indicated that he believed it would be ESL’s responsibility.

Prior to the ruling, the Pension Benefit Guaranty Corp. (PBGC), which had also opposed the sale, reached a settlement with Sears that reduced their claim from $1.7 billion to $800 million. The terms of that settlement have not been made public. The PBGC is the federal agency that guarantees pension plans. It will take responsibility for the two Sear’s pensions which provide benefits to almost 90,000 Sears employees.

Sears bankruptcy documents and calendar of upcoming deadlines are available on Prime Clerk’s website.

The Toy Association will continue to monitor developments with respect to retail bankruptcies and will share relevant news with members as quickly as possible. Additional information can be accessed at ToyAssociation.org. Contact Paul Vitale, executive vice president of finance and operations, with questions.

Eligible manufacturing members of the Association are urged to attend the Toy Fair Credit Meeting on Monday, February 18, where several presentations related to the state of the retail industry will be made. A complete agenda can be found online. Questions about the Toy Fair Credit Meeting may be directed to Dina Gittings, The Toy Association’s Credit Interchange program manager.