Tag: SHLD

It is a small deal but one that has the potential to change the image of Sears Holdings (SHLD) in home furnishings.

In a filing with the SEC (below), Sears said it acquired 5.31 million shares for about $30.2 million in cash of Restoration Hardware (RSTO).

Restoration Hardware, is a specialty retailer of hardware, bathware, furniture, lighting, textiles, accessories and gifts. The Company operated 103 stores and eight outlet stores in 30 states, the District of Columbia and Canada as of February 3, 2007. In addition to its retail stores, Restoration Hardware, Inc. operates a direct-to-customer (direct) sales channel, which includes both catalog and Internet, and a wholly owned furniture manufacturer. The Company is a multi-channel business and its catalog distribution drives sales across Restoration Hardware’s retail, catalog and Internet businesses. The Company uses its catalog as the primary marketing vehicle, marketing to new customers and return customers, both in and outside the retail trade area.

From the SEC Filing:
“In June 2007, on behalf of Sears Holdings, the Chairman of Sears Holdings and another member of the Board of Directors of Sears Holdings approached a non-management director of the Issuer to inquire as to his views concerning a possible business combination or other strategic transaction involving the Issuer and Sears Holdings. This director advised Sears Holdings to contact the Chief Executive Officer of the Issuer. Following this conversation, the Chairman of Sears Holdings spoke with the Chief Executive Officer of the Issuer and discussed the potential benefits of a business or strategic combination between Sears Holdings and the Issuer. After that conversation, the Chairman of Sears Holdings spoke to the non-management director of the Issuer with whom he had previously spoken and this director suggested that the Chairman of Sears Holdings continue speaking with the Chief Executive Officer of the Issuer.

Shortly thereafter, the Chairman of Sears Holdings requested an opportunity to meet in person with the Chief Executive Officer of the Issuer to discuss the benefits of a transaction involving the Issuer and Sears Holdings. Due to scheduling conflicts, the Chairman of Sears Holdings and the Chief Executive Officer of the Issuer did not meet during the summer. In early October, the Chairman of Sears Holdings, the President of Sears Holdings’ Lands’ End business and a non-management member of Sears Holdings’ Board of Directors had a meeting with the Chief Executive Officer of the Issuer. Sears Holdings did not enter into a confidentiality agreement or receive non-public information about the Issuer or its business in connection with these discussions, and no price or terms of any transaction were solicited by the Issuer nor proposed by Sears Holdings.

In late October, in a conversation with the Chairman of Sears Holdings, the Chief Executive Officer of the Issuer informed Sears Holdings for the first time that the Issuer was considering a potential management buyout transaction and that a Special Committee of the Board had been established. After being informed of this development, Sears Holdings sent a letter to Raymond C. Hemmig, chairman of the Special Committee of the Board of Directors of the Issuer, proposing a transaction at $4.00 per Share (a 39% premium to the Shares’ closing price of $2.87 on the last trading day prior to Sears Holdings making its proposal) and informing him of Sears Holdings’ potential to increase the offer as a result of information gained from a due diligence process. Mr. Hemmig later responded by e-mail that the Special Committee was not prepared to have Sears Holdings engage with the Issuer’s management team and advisers in due diligence on the proposed terms and indicated that in order to have the opportunity to engage in due diligence Sears Holdings should revise its proposal to offer a substantially higher price.

On November 8, 2007, the Company announced it had entered into an Agreement and Plan of Merger (the “Home Merger Agreement”) with Home Holdings, LLC, a Delaware limited liability company, and Home Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Home Holdings, LLC.

Sears Holdings is seeking to obtain from the Issuer certain non-public information concerning the Issuer, as permitted by the Home Merger Agreement, and has indicated that it would enter into a confidentiality agreement in order to do so. Sears Holdings and the Issuer have discussed the terms of such a confidentiality agreement. There can be no assurance that Sears Holdings will enter into a confidentiality agreement or will receive any such information from the Issuer.

Sears Holdings intends to evaluate the Issuer and the desirability of proposing an acquisition of the Issuer and it also intends to review its holdings of Shares on a continuing basis and in that connection expects to consider various factors including, without limitation, the current and anticipated future trading price levels of the Shares, the status of the transactions contemplated by the Home Merger Agreement, the financial condition, results of operations and prospects of the Issuer, tax considerations, any non-public information which it may receive from the Issuer, conditions in the home furnishings industry and securities markets, general economic and industry conditions, other investment and business opportunities available to Sears Holdings, and other factors that Sears Holdings may deem relevant, and will in the future take such actions with respect to Sears Holdings investment in Issuer as it deems appropriate.

Such actions that Sears Holdings may take include, without limitation: (a) undertaking an extraordinary corporate transaction such as a tender offer or exchange offer for some or all of the Shares or a merger, consolidation, other business combination or reorganization involving Issuer; (b) increasing or decreasing its position in the Issuer through, among other things, the purchase or sale of Shares in open market or private transactions for cash or for other consideration; (c) seeking to acquire or influence control of the Issuer, including seeking representation on the board of the Issuer; (d) entering into derivative transactions, engaging in short selling of or any hedging or similar transactions with respect to the Shares; or (e) taking any other action similar to those listed above. Any open market or privately negotiated purchases, sales, distributions or other transactions may be made at any time without further prior notice.”

Why will this acquisition matter? RSTO is a very successful high end catalog retailer like, ummmm…. Land’s End!! We know Land’s End is the future of Sears Holdings retail and Sears will be able to market RSTO’s merchandise both in the Land’s End catalog AND in the new Land’s End stores (200+ to date). Restoration saw sales increase 40% in FY 2007 vs FY 2006 and the ability of Sears to seamlessly merge its merchandise into their existing operation will cause the segments sales to explode AND give more people a reason to look at Sears for products.

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Sears Holdings Corp filed after 5pm ET on Monday, 11/19/07, a 1-document, 2-page '3'

Initial Statement of Beneficial Ownership of Securities — Form 3 for the period ended Monday, 11/12/07 filed as of Monday, 11/19/07, with respect to Restoration Hardware Inc

________________________________________________________________

This filing: '3' — # 0000898822-07-001384 @ 071119-222000 —

http://www.secinfo.com/$/SEC/Filing.asp?D=rDX9.u1B7&CIK=1310067

Reporting owner: Sears Holdings Corp —

http://www.secinfo.com/$/SEC/Registrant.asp?CIK=1310067

Subject company: Restoration Hardware Inc —

http://www.secinfo.com/$/SEC/Registrant.asp?CIK=863821

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Barron’s had a very interesting article yesterday about the release of Sears Holding (SHLD) earnings.

From the Article:

“…it was only late yesterday (Monday) that investors learned that Sears Holdings, which owns Sears and K-Mart, will report third-quarter earnings on Nov. 29 before the financial markets open.

The computer programs that detail earnings dates had predicted Sears Holdings would report earnings Nov. 13, which is three months after the company reported second-quarter earnings.

All the uncertainty about a basic corporate fact that so many other companies divulge without any great mystery, coupled with concerns about weakening consumer spending, increased the implied volatility of Sears Holdings’ options, perhaps even more so than if the company were transparent about its earnings report date.

Prior to Monday’s press release, most investors expected earnings before November options expire. This caused the implied volatility of Sears Holdings’ November options to hover around the range of 60%, or 12 volatility points higher than December options. In fact, many traders had implemented November “put spreads” — selling one high-priced option to lower the cost of buying another put option — to hedge against a decline in the stock. Today, investors have to readjust positions as the new earnings date occurs in the December expiration.”

Why the delay on Sears part? Easy. Lampert is busy buying shares back by the truck load and wants to get as much buying done before he releases the information. The delay gives him another two weeks to buy shares near their 52 week low levels (down 27%).

A reader alerted me to the fact other value investors have been busy buying shares currently (a thank you to Russ):
Pershing Square – 5 million shares
Fairholme Capital (legendary value investor of FAIRX) – 2.9 million (192% increase from last filing)
Third Point – 650K shares

Last quarter Sears’s board approved a $1.5 billion share repurchase program. Anyone want to bet that when results are released that buyback plan is completed? Does anyone think that ESL, Lampert’s hedge fund may have bought a few more shares?

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“Customers are still spending for the holidays. Halloween was very good for us, so I suspect that Christmas is going to be great,” said Raul Vazquez, Walmart.com’s (WMT) CEO recently.

While overall U.S. online holiday sales are expected to rise about 20% this year, Walmart.com’s sales should jump between 40% to 60%. It would appear that the “Black Friday” Wal-Mart held the Friday after Halloween was success and that momentum is carrying over.

Vasquez said that unlike past years the retailer will post special deals on its Web site Thanksgiving day. The selected items, many of which will only be available online, can be purchased through the Web site that same day.

They are also planning special online deals for what it is calling “cyber-week”, the Monday through Friday after Thanksgiving. It will offer special deals on twice as many items as a year ago, and it will post new items on its site daily during those five days, he said.

They also have completed the roll-out of its “Site to Store” program that now accounts for 1/3 of all online transactions. It allows customers to order products on the Web site and have them shipped to a local Wal-Mart store for free. Vasquez said of the program, “It has exceeded our expectations, we expect it to rise.”

Wal-Mart is the place people turn to when times get tough and the consensus now is that they just may. That being said Wal-Mart is out front with its online site and the integration of it to the stores on such a massive scale. Sears Holdings (SHLD) has a similar program through its site but it does not compare to the Wal-Mart site in terms of ease of use and breadth of offerings. One drawback is that the Kmart and Sears sites and the merchandise is not consolidated, causing the user to have ti use both sites to find an item, not convenient.

Target, (TGT) based on what I can tell does not have a site-to-store program and that hurts them as it makes their site that much less convenient that the others.

Wal-Mart reinvented the retailing experience and now they seem to be reinventing the retailing internet one as well.

Oh yea…. If Lee Scott did not buy back at least $2 billion in stock the last quarter, time to go…

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Analyst Seth Sigman of Credit Suisse calculated for the first time values on Sears Holdings’ (SHLD) property and brands.

In a report issued Tuesday he estimated values as follows: real estate, $9.5 billion to $11.5 billion; leased stores, $1 billion to $2 billion; distribution centers, $700 million to $1.1 billion; Hoffman Estates headquarters, $200 million to $400 million; private brands, such as Craftsman, Kenmore and DieHard, $3 billion to $5 billion; Lands’ End, $2.2 billion to $2.8 billion; and home services business, $2.8 billion to $3.5 billion. Total? $19.4 billion to $26.3 billion.

That is just the value of the land and the brand’s, it does not include the results of the retail operations which contributed $2.5 billion last year. Sears current valuation on the market? $18 billion, 7% below even the lowest estimate of just it’s real estate & brand value and 46% below the highest.

Currently shares trade at $127 and there are less than 140 million of them outstanding (we will know exactly how many Lampert has repurchased soon but he may have bought 10.4 million back). If we were to value Sears just on the brands and not on it’s operations, we get a share price of $137 to $185. We also have to value the operations and that gives us an additional $9.47 a share for the past 12 months giving us a price range of $145 to $194.

The important point is that this valuation include NO premium for either the brands, property or earnings. It is a flat valuation of the parts and a years earnings. What type of valuation do we give the capacity of Lampert to monetize the brands or the property?

Sears is trading at 13 times its current earnings, at the lower end of the retail spectrum. Consider Wal-Mart (WMT) trades at 15 times, Target (TGT) 17 and Macy’s (M) 18 times. If we add the value of the property and brands we can effectively double its current share price. The issue for the market currently is that the value of those items will not filter into the stock price until Lampert unlocks that value. If Lampert decide to sell or lease the land he owns, the value of that then filters into the stock price. If he licenses the Craftsman or DieHard brands, that value then filters into the price. Without anyone knowing what his plans are, investors are hesitant to make a leap of faith and assume he may take a certain course.

Thus the “hidden value” in Sears shares… Lampert is smart and will not sit tight forever. My guess is he is buying as much stock as he can at these prices while he can before he moves….

It’s alright, I got time…

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Some thoughts on the effect of current credit conditions and whether or not they now give Sears Holdings (SHLD) Eddie Lampert an opportunity to make a long awaited acquisition at prices he will pay.

Drastically tightened credit markets have lead to a sudden withdrawal by PE firms making potential buyouts. With both credit and terms of it becoming less advantageous, many deals that PE firms would have made before are now attractive only to strategic buyers who can merge operations.

A look at the restaurant industry shows earlier deals by PE buyers included OSI Restaurant Partners (Outback Steakhouse) acquisition by Kangaroo Holdings, Long Star Steakhouse’s purchase by Lone Star Funds, and Ryan’s Restaurant Group’s acquisition by Caxton-Iseman Capital.

Now, if we look at recent deals we see that strategic buyers are the ones doing deals now. Applebee’s (APPB) pending $2 billion purchase by IHOP (IHP) is as transaction most people thought would go to a private equity firm. Rare Hospitality’s (RRH.BE)$1.4 billion acquisition by Darden Restaurants (DRI)., which operates Olive Garden and Red Lobster, closed just last month.

Back in June there was talk about Sears Holdings making a bid for Macy’s and at the time I said “Should we root for this? Yes. If Lampert goes for it, he is seeing value in the assets and name far in excess of the current price. The plus of having Lampert buy it? He will have the ability to quickly extract that value for shareholders, of which, we must always remember, he will be the largest one.”

I also said that a deal then was unlikely due to Macy’s (M) price at the time. But, consider now that shares have dropped over 25% since then and if Lampert were to make a run at the retailer, he now likely would be the only bidder, lowering any potential price.

Why would Lampert want Macy’s? Probably because of the value of it is along the same lines as Sears when he bought it. The retailer owns more than half of its 858 Macy’s and Bloomingdales stores. The rest the company stores it leases or owns on leased land. Owning Sears, Kmart, Bloomingdales and Macy’s would make Lampert option #1 for anyone wanting footage for retailing. It would also give Lampert a stunning array of options to increase shareholder value of which, it bears repeating, he is by far the largest.

Macy’s has a market cap of $13 billion about 2/3 that of Sears. Without any significant debt currently ($2.6 billion) and over $1 billion in cash assuming they complete the recently authorized $1.5 billion buyback this quarter, Sears could do the deal easily. Macy’s produces about $4 billions a year in cash from operations and Lampert would save another $275 million by eliminating the dividend.

PE firms were causing a bidding war for companies earlier in the year and with their specter drastically reduced, it may be the time for Lampert to make his next move.

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Greenie’s Book, Morningstar, Thank You, Sears Holdings

– It looks like Greenspan’s book isn’t going to be the big seller it was made out to be.

– Morningstar examine the investing styles a guess what comes out a winner?

– Thank you to NY Magazine for the mention.

– Here is another look at the potential real estate value in Sears Holdings (SHLD)

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