Bankruptcy judge gives Sears, Kmart another chance

Sears still faces cutthroat competition from Amazon Target and Walmart and its stores look old and drab

Sears still faces cutthroat competition from Amazon Target and Walmart and its stores look old and drab

In delivering his decision Thursday, U.S. Bankruptcy Judge Robert Drain for the Southern District of NY rejected the committee's claims that the sale process was unfair and flawed, that it shut out any other parties who could have been interested in buying the business and that Sears had more value to its creditors if it died than if it lived.

"For the sake of our jobs, our co-workers, our communities, and our families, we want Sears Holdings to succeed, not be a pawn in Lampert's game", the employees wrote. Lawyers for Sears and ESL argued that the sale offered the best alternative and also played up the need to save jobs.

They said Mr Lampert, the firm's chairman and former chief executive, had no viable business plan, and they would recover more money if the firm was liquidated. "Lampert and ESL managed Sears as if it were a private portfolio company that existed exclusively to provide the greatest returns on their investment, recklessly disregarding the damage to Sears, its employees and its creditors".

"He is a wealthy individual and a big boy", Drain said. But the subcommittee of the Sears board overseeing the auction pushed back, and Lampert and ESL can be sued for certain past deals prior to the bankruptcy. Although Drain did not have jurisdiction to decide the issue, he gave an advisory opinion in favor of Sears' claim that ESL is responsible for those liabilities.

"I conclude that the process here was proper and appropriate", Drain said in his reasoning for approving the sale.

The future of Sears rides on arguments in a packed courtroom Thursday. The agency last week took over two underfunded pension plans covering 90,000 Sears retirees and other beneficiaries.

The judge's decision saves Sears from liquidation, but still unanswered is whether Lampert can reinvigorate a retail chain that many consumers have fond memories of, but no current relationship with.

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Lampert has been criticized for not investing in his stores. The company's future strategy seems to be exemplified by a new smaller-format store that opened previous year in Oak Brook, which focuses on merchandise such as appliances, tools and women's sportswear. He said dumping so many stores and other assets onto the market at the same time would reduce the amount of money that would be raised in liquidation.

When Lampert combined Sears and rival chain Kmart, the merged retailer had almost 3,500 stores and employed more than 300,000 people, a workforce that shrank to 68,000 when it filed for bankruptcy. Another 262 stores have closed or are expected to close by March.

Terms of the sale allow for some litigation to continue against Lampert and ESL. In his bid, Lampert said he would cut overhead expenses in half.

During the hearing, which started on Monday, Drain focused on the specter of jobs and put the lawyers representing the creditors' group on the defense.

"It maximizes the value of the assets while preserving the claims against ESL/Lampert", said Wander, a partner with Davidoff Hutcher & Citron in NY.

Despite the court's approval of the takeover, Sears continues to face "major hurdles", Moody's department store analyst Christina Boni said. "Scale, which is critical to competing in retail today, will be lacking and its core customer proposition still remains in question".

Attorneys for Sears and Lampert had argued the sales process was fair and that keeping the company open would be better for all involved.

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