Lampert's Last Move Could Be a Sears Buyout

Sears Holding could be facing an end game, but that might not be the worst thing in the world for the man who controls the company, Edward Lampert.

When Lampert and his ESL hedge fund took control of Sears several years ago, observers in the commercial real estate community called it a straight estate play and figured he’d sell stores to home and condo developers in pricey neighborhoods around Chicago and other towns where property values were skyrocketing. Transactions of that sort were happening then. No longer.

Sears’ latest financials were a disappointment, and its commitment to buy back $500 million in stock looks like a stopgap measure. Efforts to leverage its popular Craftsman and Kenmore private labels by rolling them into new product lines and into Kmart, as well as to revitalize Kmart’s Jaclyn Smith label, probably aren’t enough to salvage the retailer.

Yet as its value contracts, taking Sears private becomes cheaper. Lampert controls around half of the company’s stock already, and he could claim that purchasing the remainder is last resort to save a classic American company and many American jobs. Taken private, Sears would no longer be pressured to produce the kind of top- and bottom-line growth Wall Street demands, letting it concentrate on squeezing out what returns it can until conditions improve. Dumping poorly performing stores is no longer a headline issue, nor is holding onto them if rebounding real estate prices might make them valuable again in a few years. And once taken private, retailers can indulge in practices such as stretching out supplier payments to boost the money going to owners.

Such a scenario is little more than informed speculation, but it at least hints at an available endgame for Sears. Doing so might raise some eyebrows as questions about how Lamper weighs his fiduciary responsibilities to Sears’ shareholders and ESL have gotten some press, but, these days, bending the spirit and debating the letter of the law have become commonplace as industry, unions and the government try to prop up a sagging economy.