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Is Sears on the Verge of Liquidation?

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Last chance

According to a CNBC report, Sears Holdings (SHLDQ) might have one day to save itself from being liquidated. CNBC said that Sears’ survival hinges on ESL Investments $4.6 billion deal. Citing people familiar with the backdrop, CNBC reported that ESL Investments is willing to fully take over Sears, which no other bidder has offered. However, ESL Investments hasn’t submitted the bid yet. The time limit for the submission is December 28.

ESL Investments, which is headed by ex-Sears CEO Edward Lampert, has been infusing money into Sears to help it stay in business for a long time.

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CNBC said that Sears’ advisors will only have time until January 4 to decide if it’s a qualified bid. Lampert is frantically searching for investors to back his $4.6 billion bid to save Sears. CNBC reported the Lampert agreed to let go of Sears’ $1.8 billion debt to him through a process called “credit bid.”

Bankruptcy filing

Sears filed for bankruptcy protection under Chapter 11 in October. Over the past few years, poor managerial decisions and the fast-evolving retail landscape had a negative impact on Sears’ business.

Although store closures were part of Sears’ cost savings strategy, they added to sales erosion. Lower merchandise on display and poorly kept stores have also turned away shoppers. Since Sears was hemorrhaging cash, it started selling assets to pay back debt.

Selling off properties to pare debt might help in the near term, but it’s more of a patchwork solution. Selling off assets to boost cash levels isn’t a real growth strategy especially when sales show no signs of improvement. Given Sears’ faulty strategies, there have been speculations for years that the retailer would file for bankruptcy.

Just like Sears, JCPenney (JCP) is also struggling. On December 27, JCPenney stock fell below $1.00.

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