CHICAGO _ The hedge fund run by Sears CEO Edward Lampert has offered to buy the retailer's popular appliance brand Kenmore and other Sears divisions, moving to break up the company after it failed to find other buyers for the assets.
Sears said it has received a letter from ESL Investments suggesting that it acquire all or a portion of its Kenmore brand, the home improvement business of the Sears Home Services division and the Parts Direct business of the Sears Home Services division.
Hoffman Estates-based Sears Holdings Corp. has been exploring alternatives for those businesses, as well as the Craftsman and DieHard brands, for nearly two years. In 2016, Sears did not say what kinds of options it was considering. But ESL Investments told Sears it should "aggressively pursue divestiture" of all or some of those businesses after failing to find a buyer for assets other than Craftsman. It sold the well-known tool brand to Stanley Black & Decker in a deal valued at $900 million.
Sears' shares were up more than 3 percent in midday trading.
A sale would give the retailer a cash injection as it works to restructure its business after racking up more than $10.8 billion in losses over the past seven years. The company has said it believes there's room to grow those brands by expanding their distribution beyond Sears.
The brands would continue to operate as they have, according to the letter to the board of directors, which was filed with the Securities and Exchange Commission. ESL also offered to buy certain Sears real estate assets, including debt, and continue to lease the properties to Sears or other entities.
"As noted in our letter to the Board of Directors, our proposal is part of a comprehensive solution to transform Sears Holdings," ESL said in a news release.
"Our principal interest is seeing that Kenmore, SHIP and PartsDirect are divested in the near term in a transaction that delivers the greatest value for Sears, regardless of whether ESL or a third party is the ultimate buyer," ESL said. "This will enable Sears to improve its debt profile and liquidity position, creating the runway to help continue its transformation, and allow these businesses to unlock their considerable potential by further expanding their presence in the marketplace. We are very enthusiastic about our ownership interest in Sears and its future, and will remain so whether or not a transaction is consummated."
ESL valued the Parts Direct and home services division at $500 million. It did not provide a valuation of the Kenmore brand but offered to submit a proposal and said it believed it could close on a deal in 90 days.
Sears said it will review the letter but would not make an additional comment.
Using the pieces of its retail empire to generate cash isn't a new strategy for Sears. It spun off the Lands' End brand in 2015, bringing in a $500 million cash dividend. A year later, Sears sold 235 stores to real estate investment trust Seritage Growth Properties _ in which Lampert holds a stake and serves as chairman of the board _ and raised $2.72 billion.
Transactions announced since the start of 2017 added up to more than $1.8 billion in additional capital, according to a March report from Moody's Investors Service. The sum includes asset sales and loans backed by Sears' real estate and intellectual property, excluding the Kenmore and DieHard brands.
Analysts have said making its stronger brands more widely available outside Sears could boost sales and provide a source of cash for a company that has repeatedly tapped its CEO for loans as it works to restructure its business and cut costs, including closing 426 stores last year.
But some analysts have cautioned that selling off Sears' best brands could leave shoppers with fewer reasons to visit its stores. And while the company still has a "meaningful' amount of real estate and other brands that could provide a source of cash, the more it sells, the fewer assets it will have to fund future shortfalls, Moody's said.
Moody's also noted Sears issued $1.8 billion of securities backed by royalties from the Kenmore, Craftsman and DieHard brands, which could affect their value.
