As questions have swirled about the viability and motivation behind Eddie Lampert’s $5.2 billion planned purchase of Sears out of bankruptcy, one notion has been constant: his offer is the only one that would save 45,000 jobs.
Now, even that tenet has been thrust into question. Sears’ unsecured creditors took to the U.S. Bankruptcy Court for the Southern District of New York in White Plains on Monday to protest Lampert’s bid for Sears. In cross-examinations of Sears’ financial advisor, Lazard’s Brandon Aebersold, and board member William Transier, the unsecured creditors’ legal counsel dug into the uncertainty that persists around Sears’ ability to grant continued employment.
Lampert, Sears’ chairman, is purchasing Sears through an affiliate of his hedge fund ESL Investments. As part of the proposed deal, Lampert has said he is aiming to buy 425 stores, which equates to roughly 45,000 jobs. But the exact stores Lampert will continue to operate, and thereby the official number, has not been formalized. Lampert has until May to do so.
Meantime, Sears, which also operates Kmart stores, plans to close more stores in 2019 and beyond, a point its unsecured creditors raised in court.
Akin Gump’s Joseph Sorkin, legal counsel to the unsecured creditors, asked Lazard’s Aebersold how many stores the company plans on closing in 2019. When Aebersold responded that he did not know, Sorkin followed up about the number of jobs that could be impacted.
“Do you know how many employees will lose their jobs over the course of 2019 as a result of the plans ESL has?” he asked. Aebersold likewise did not know the impact on jobs.
In later testimony, Sears board member Transier acknowledged Sears could close an average of three stores a month this year and sell $600 million in real estate over the next three years.
Lampert’s bid, and its ability to save jobs, has become a touchpoint, in part because the new company faces significant challenges. Under Lampert’s guidance the company hasn’t turned a profit since 2010. Its competitors, like Walmart and Target, are bigger and better funded than Sears, allowing them to make investments in technology and stores that Sears cannot match.
Sears’ unsecured creditors have, therefore, questioned whether Lampert’s push to resurrect Sears is driven by an achievable business plan, or “nothing but the final fulfillment of a years long scheme to rob Sears and its creditors of assets and employees of jobs while lining Lampert’s and ESL’s own pockets.”
The unsecured creditors have accused Lampert of using his unique position as Sears’ longtime chairman, CEO and largest shareholder to orchestrate deals that unduly benefited him. Those deals include Sears’ spinoff of Lands’ End in 2014 and transactions with Seritage Growth Properties, a real estate investment trust Lampert created through some Sears’ properties a year later.
Their cause has seemingly resonated. In a letter addressed to Lampert, Democratic presidential candidate Sen. Elizabeth Warren recently wrote: “I am concerned that under your leadership, Sears may continue to struggle and employees will continue to face uncertainty and anxiety over their future employment, and ongoing risks to their benefits and economic security.”
Meantime, workers rights group Rise Up Retail has been leading rallies of current and former Sears workers to advocate for the protections of workers after Sears’ bankruptcy.
Despite questions about the magnitude of jobs Lampert’s bid would save, the judge overseeing the case, Judge Robert Drain, has indicated support for an offer that could still save any number of jobs. Drain twice granted ESL and Sears more time in order to craft a resolution when it seemed like they had reached a breaking point.
That apparent proclivity was another point underlined by lawyers representing Sears’ unsecured creditors on Monday. A lawyer with their legal team referred to minutes from a meeting with the judge after which Sears had rejected ESL’s offer. According to the minutes, Drain encouraged Sears and ESL to make one more attempt to get past the finish line.
Drain, meantime, seemed at some points to have run out of patience with the lawyers for the unsecured creditors. At one occasion, Drain admonished counsel for the unsecured creditors for having “spent 20 minutes going over stuff that is unnecessary.”
When lawyers informed Drain that a new potential point of contention between Sears and ESL arose Sunday night over who would assume $166 million in liabilities, Drain reminded the parties they have already signed a legal contract.
A spokesperson for Sears declined to comment.