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So when will the combination of the three happen?
AutoZone (AZO) added two new Board Members the other day. They are:
William Crowley, a former managing director of Goldman Sachs (GS). Crowley also has served as a director of Sears Holding (SHLD) since 2005. He has served as a director of Sears Canada Inc. since March 2005 and as the chairman of the board of Sears Canada since December 2006. Since 1999, he has been president and CEO of ESL Investments Inc., a private investment firm run by Sears largest shareholder Eddie Lampert. Crowley also serves as a director of AutoNation (AN) Inc.
Robert Grusky founded Hope Capital Management LLC in 2000 and serves as its managing director. That same year he co-founded the private equity firm New Mountain Capital LLC and served as principal, managing director and member. He's now a senior adviser. Grusky is a director of AutoNation (AN) and Strayer Education Inc.
The additions were part of a late June agreement with ESL and Lampert regarding his ownership.
This now means the three boards have overlapping representation. Lampert controls the Sears Board, will have 20% to 30% of the AutoZone Board after the 2008 Meeting in December and 25% of AutoNation's.
What does it all mean? Is he taking them private? No. There is no way with the incestuous Board relationships Lampert could pass any "fairness" test in a "taking private" scenario.
What then? Lampert will eventually own all three under the Sears Holdings umbrella.
Sears in one swoop will become the nations largest auto dealer, auto parts and auto repair company with considerable pricing and cost savings power.
When? Not this year. Next, maybe. But wait you say, ESL owns the shares of both AutoZone and AutoNation, not Sears. So what? Lampert can sell the shares to Sears in a private sale and in a day Sears owns almost 50% of both companies. Lampert needs no authority from either group of investors (ESL or Sears) as he has full authority to allocate capital as he wishes now. ESL investors would most likely be happy to take less for their AN and AZO shares now (than a public auction would garner) recognizing they are still the largest shareholders of Sears and will make the money in spades later.
Folks who have $5 million to let Lampert lock up and play with for 5 years see the bigger picture.
If this eventually happens, one has to think it has been in the cards for years now. That would possibly make Lampert the most patient man in the world...
Disclosure ("none" means no position):Long SHLD, AN, None
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12 replies on “AutoNation, Sears and AutoZone Getting Closer”
If Eddie pulls something like this off, watch out. It would be an incredible coup if he could make it work…
This is what distinguishes this blog from all others.
thanks you
what is the economic justification to do such thing? are there any economies of scale between sears and others?
there would be huge scale in the auto business as they would have complete vertical integration…
also, all three are very profitable and the acquisition would be done far cheaper than an open market auction
While I am long SHLD and have enjoyed reading your blog for quite a while, I have questions on this prospect. I agree with you that a SHLD/AZO combo would be great – which is why I bought searsautozone.com a while back (of which I was contacted by AZO asking for me to hand it over)… but my questions on your private sale concept are:
1) EL has control of free cash at SHLD (which is not enough to fund the $4B worth of AN/AZO shares ESL owns. Therefore – does EL have access to Treasury stock of SHLD so he could release the shares that he has been buying back? If not, he would have to be patient enough to stack up the cash in order to pull it off. It would be hard for him to immediately pull cash out of the transaction since AN/AZO do not have a lot of cash that they could issue as a special divident so a debt acquisition would not be likely.
2) Tax consequences – is this an acquisition that could be taxed or strictly a private transaction? If it is considered a acquisition then a cash deal would be taxed, yet a share swap/”merger” would be tax free (usually).
3) Regarding the synergies – are these strictly brand and selling or would a majority owned subsidiary (still trading ie Sears Canada) be able to implement consolidation of operations and departments to capture the true savings from headcount reductions?
4) Unrelated to this particular SHLD/AZO/AN thought of which I agree will happen (just not sure exactly how) – here is another thought I would like to open up… Let’s talk international brand expansion into developing regions. I would love to see 3 billion people in China/India using Craftsman tools to build up their nations… That’s where the crazy money could be made if this thing works!
We know ESL have done exellent job in both AZO and AN, and continue to do so, but could you be more specific and explain, what kind of benefit you see, if SHLD take AZO & AN under it´s umbrella?
Do you see SHLD commercial space any valuable for AZO or AN (for futher expansion)?
Diehard battery is one thing, but what else? 😉
ps, Todd, thanks for blog, this is most intresting value-blog what i know.
pss, sorry bad language, im from Europe.
Anon,
1- Lampert is esl and esl is sears. lampert controls both and can do what he wants with both
2- not sure about taxes
3- i would think there would be both for savings.. i think they would have huge pull with suppliers. you could actually set up “discounted” service for autonation purchased cars at sears auto and “discounted” parts at autozone to direct traffic.
just a thought
Tuil,
thank you
language…..didn’t notice..
the synergies travel up through the chain. in one swoop, they would be able to handle every aspect of the auto from sales to service to parts….
no one else can do that..
Sorry to be so obtuse, but what exactly does all this mean for AZO shareholders?
well,
think of it like this.AZO would then have access to 2000 sears auto locations (or vice versa) making it by far the largest parts retailer in the country. that would give it huge leverage with suppliers..
Anon,
What was the outcome on your domain purchase searsautozone.com?