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Oct 2, 2014 7:37 AM

Sears to raise cash through Canadian ops sale

The Associated Press

HOFFMAN ESTATES, Ill. (AP) Sears, sorely in need of cash, is selling most of its stake in its Canadian unit to raise as much as $380 million.

The rights offering to shareholders for the majority of its 51 percent stake in Sears Canada Inc. will give the retailer some breathing room as it heads into the crucial holiday season.

The announcement Thursday is the last in a string of initiatives the company is undertaking to shore up finances. Sears said that it will evaluate its capital structure over the next six to 12 months and may take further action to create more financial flexibility.

The offering comes after Sears failed to find a buyer for the Canadian operations and also the announcement last week that the president and CEO of the unit, Douglas Campbell, would leave at the end of the year.

The company board approved a rights offering of up to 40 million shares of Sears Canada Inc. Sears will still hold about 12 million shares of Sears Canada, valued at about $113 million.

Chairman and CEO Edward Lampert plans to fully exercise his subscription rights. ESL Investments Inc., of which Lampert is also chairman and CEO, will do the same.

The retailer, based in Hoffman Estates, Illinois, expects at least $168 million in proceeds from the rights offering in mid-to-late October, with the rest by early November. That, in combination with a $500 million dividend tied to the spinoff of Lands' End, $165 million in proceeds from some real estate transactions and a $400 million short-term loan, will provide Sears Holdings with up to $1.45 billion in liquidity in fiscal 2014, according to Chief Financial Officer Rob Schriesheim.

The challenges still facing Lampert are enormous. The company has been cutting costs, reducing inventory and selling assets to return to profitability. Its biggest albatross remains its stores, which critics say are outdated and shabby.

The company's losses are mounting. For the quarter ended Aug. 2, Sears lost $573 million, up drastically from $194 million in the year ago period. That brought the company's losses for the second half of the fiscal year to $975 million.

Lampert, a billionaire hedge fund investor, combined Sears and Kmart in 2005 about two years after he helped bring Kmart out from under bankruptcy protection.

The company has since faced mounting pressure from nimbler rivals like Wal-Mart Stores and Home Depot.

Sears is also facing broader structural issues affecting retailers on differing levels of the retail sector.

Like other stores catering to the low- to middle-income customers, Sears is grappling with a slowly recovering economy that's not benefiting all Americans equally.

The median net worth of families in the middle 20 percent of incomes fell 17 percent from 2010 to 2013, according to the Federal Reserve's Survey of Consumer Finances. That is hitting Sears' core customers hard.

The retailer is also trying to catch up to customers who are steering clear of stores and shopping online.

Sears recently announced that it was taking out a $400 million secured short-term loan from entities allied with Lampert's ESL Investments.

Credit ratings agency Fitch Ratings called the loan a short-term fix for a "much larger need" of cash and downgraded Sears' credit rating deeper into junk status.

Greg Melich, an analyst at International Strategy & Investment Group LLC, wrote Thursday that Sears is "on a glide path to be out of cash by the middle of 2015 without additional asset sales or liquidity initiatives."

Shares rose more than 4 percent, or $1.10, to $26.28 in morning trading. Company shares are trading near three-year lows.


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