Parent to sell big stake in Sears Canada thru rights offer
TORONTO (02 October 2014) - The parent company of Sears Canada has announced it will divest itself of as many as 40 million common shares of its beleaguered subsidiary through a rights offering that could raise as much as $380 million.
If successful, the offering would reduce Sears Holdings Corp.'s stake in the multi-channel Canadian retailer from 51% to about 12%. Once the offering is completed, Sears Holdings will hold about 12 million shares in Sears Canada valued at about $135 million.
Some analysts have noted that by selling the shares in Sears Canada to its own shareholders, Sears Holding will raise much needed cash to aid it compete in the upcoming vital holiday season shopping period. They also observed that Sears Holdings appears to have been unsuccessful in its efforts to sell Sears Canada, an effort it launched this past May.
In a statement, Sears Holdings said the rights will be tradable and can be used to buy Sears Canada shares at $10.60 each - a slight discount from yesterday's closing price of $11.12 on the Toronto Stock Exchange. Each shareholder Sears Canada will receive the right to purchase one additional share for each share already held.
Sears Canada is controlled by U.S. hedge fund magnet Edward Lampert through by Sears Holdings and ESL Investments, a private company he controls.
Sears Holdings has said it expects at least $168 million in proceeds in mid-to-late October, with the rest by early November. Lampert and ESL have told Sears they intend to exercise their option to acquire a proportional amount of the subscription rights.
As part of the process, Sears Canada will also apply to be listed on the NASDAQ Global Select Market, where the rights will be traded. Sears Holdings is also listed on the NASDAQ.
Sears Canada has released its own statement, saying it intends to co-operate fully with the plan and it intends to file a prospectus with all Canadian securities regulatory authorities. It will also file a registration statement with the United States Securities & Exchange Commission.
In a related announcement, Sears Canada said that in connection with the rights offering, Sears Holding has agreed to extend its licence to use the "Sears" name and certain other brand names association with a number of its major product lines.
Among the best known of these brands are Kenmore appliances, Sears-O-Pedic mattresses and Craftsman tools, among others.
Under the new agreement, Sears Canada will continue to hold rights to the brands on a royalty-free basis so long as Sears Holdings continues to own 10% of its voting shares - down from the prior 25%. The rights will continue to be held royalty free should Sears Holdings completely divest itself of Sears Canada for a period of five years, up from the current three years. And, should Sears Canada believe a further transition period is needed, it will be grated for a further four years, at a below market rate.
It's no secret Sears Canada is struggling to regain its leadership position on this country's retail scene. It has declared a loss in nine of the last 14 fiscal quarters, despite selling a number of key assets during that time. For the best part of the last two decades, Sears Canada has been this country's dominate purveyor of furniture, mattresses and major appliances and their hold on these categories has been shaky for the past while.
Last week, Douglas Campbell announced he will resign as president and chief executive officer of Sears Canada after only a year in the post before the end of 2014.