Sears was granted a new lifeline on Thursday as its sale to Chairman Eddie Lampert, through an affiliate of his hedge fund ESL Investments, was approved by Judge Robert Drain.
ESL has said the $5.2 billion deal to buy the company will save 425 stores and roughly 45,000 jobs. Drain said on Thursday he expects to enter the order on Friday, thereby making it official.
Sears filed for bankruptcy in October, and Lampert’s bid had been the only option that could have saved it. The deal though, has been protested by its unsecured creditors, which have lambasted the deal as a “scheme to rob Sears and its creditors of assets.” They have accused Lampert of using his unique position as Sears’ longtime chairman, CEO and largest shareholder to orchestrate deals that unduly benefited him.
In a trial that spanned three days and two courtrooms within the White Plains, New York courthouse, Drain overheard a litany of concerns from Sears’ unsecured creditors, who pointed to potential flaws in ESL’s business plan and its previous failures running the retail giant. The creditors attacked the bankruptcy sale that Sears ran as it looked for a buyer and argued that ESL’s bid was deficient.
As Drain read his ruling Thursday, he outlined the obligations before him, as laid out by the bankruptcy code. He said he had to determine whether the deal made “good business sense,” which the judge said he believed it did. A continued focus for Drain throughout the trial was the fact that Lampert’s deal was the only route to saving 45,000 jobs.
He closed his ruling by directly addressing Lampert, though the reclusive billionaire was at his house in Florida and not in attendance.
Lampert, who has been accused by many for the retailer’s downfall, has been the subject of “verbal abuse,” Drain said. In addition to the accusations lobbed by the company’s unsecured creditors during the course of Sears’ bankruptcy, Lampert has also been a target of presidential candidate Senator Elizabeth Warren, angry former Sears’ workers, as well as retail pundits.
With Sears’ revival, said Drain, Lampert “has the opportunity not to be a cartoon character … he should do that.”
The judge urged Lampert to continue to have a clear communication process with the company and its employees as he guides the emerged business.
Lampert’s previous missteps, communicating and otherwise, were well documented over the course of the trial. Lampert merged Sears and Kmart in 2005, and both companies have fallen since then. The combined company has not turned a profit since 2010.
“I do recall us missing our plan for every year were I was the board,” conceded Kunal Kamlani, president of ESL, who has served on the board since March 2016.
Kamlani outlined the vision the company has for its resurgence, echoing papers ESL filed with the bankruptcy court last week. It plans to build out smaller stores focused on selling its most popular products like appliances and mattresses. It also expects to operate more profitably by only running 425 of its profitable stores, rather than its roughly 700 stores it was running when it filed for bankruptcy in October.
When Drain inquired whether a smaller footprint also meant for decreased operating clout with suppliers, Sears’ Chief Financial Officer Rob Riecker said he believed a smaller scale will help the company “optimize” its inventory, rather than “starving” its unprofitable stores.
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