Sears to cut Sears Canada stake to raise cash for holiday season

October 2
11:34 PM 2014

Struggling Sears Holdings Corp (SHLD.O) said it would raise up to $380 million by selling most of its stake in Sears Canada Inc (SCC.TO) through a rights issue, generating much-needed cash ahead of the crucial holiday shopping season.

Sears Holdings, which has been posting losses since mid-2012, has been closing stores, cutting inventory and selling property and assets after nearly a decade of falling sales.

The company's stake in its beleaguered Canadian unit will fall to about 12 percent from 51 percent after it sells 40 million shares in the rights issue.

Shareholders of Sears Holdings will have the right to buy one share of Sears Canada for each share held, at a price of C$10.60 per share.

Sears Canada's shares closed at C$11.12 on the Toronto Stock Exchange on Wednesday. The stock was down 1 percent at C$11 in early trading on Thursday.

Sears Holdings shares rose 5 percent to $26.47 on the Nasdaq.

The rights will be issued to Sears Holdings shareholders on record as of Oct. 20.

Sears Canada will also apply for a Nasdaq listing.

Sears Holdings said Chief Executive Edward Lampert and his investment firm, which together control 48.5 percent of the company, would exercise their rights. This will raise at least $168 million by mid to late October, Sears Holdings said.

The operator of Sears department stores and the Kmart discount chain put its stake in Sears Canada on the block in May.

The rights issue is the latest in a series of steps Sears Holdings has taken to replenish its coffers.

The company raised about $500 million from the spinoff of its Lands' End clothing business in December and $165 million from the sale of real estate.

Sears Holdings also took a short-term loan of $400 million from Lampert's ESL Partners LP last month.

Sears Holdings said the rights issue would take the funds it would raise this fiscal year to about $1.45 billion.

The company had cash and cash equivalents of $829 million and long-term debt and capitalized lease obligations of $2.82 billion as of Aug. 2.

Sears Holdings will use the funds to support the turnaround of its business and for its operations in the holiday shopping season, Chief Financial Officer Rob Schriesheim said in a statement.

The company has been struggling since Lampert engineered its merger with K-Mart in 2005. The billionaire hedge fund manager has been criticized for not investing enough in the business, which has earned a reputation for dowdy stores and poor service.

Lampert took over as its CEO in February last year.

Sears Canada's market share has also been eroding for years. The Canadian chain reported in August its ninth loss in 14 quarters.

The company said last week that CEO Douglas Campbell would resign by the end of 2014 after just a year at the helm.

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