Eddie Lampert and Bruce Berkowitz called off a potential joint bankruptcy deal for Sears Canada Inc., clearing the way for other bidders to challenge its two largest shareholders.
The two hedge-fund managers on Friday terminated a joint legal engagement ahead of an Aug. 31 bid deadline. ESL Partners LP, the hedge fund operated by Mr. Lampert, also said it might sell "some or all" of its 45.3% Sears Canada stake to generate a tax loss for its investors.
For Mr. Lampert in particular, the announcement marks a rare retreat from the Sears brand name after pumping billions of dollars into both the Canadian and U.S. namesakes in the face of widespread disruptions upending the retail industry. ESL may consider other potential financing transactions or sale agreements involving Sears Canada, according to the announcement.
Mr. Berkowitz's Fairholme Capital Management LLC has also wagered heavily on a retail revival, increasing its Sears Canada stockholdings in the quarters leading up to the June bankruptcy filing. He told investors a week after the insolvency proceedings began that his 21% Sears Canada stake would still be worth an estimated $7 per share after the company emerged from court protection.
ESL and Fairholme said this month they were teaming up to develop "a potential negotiated transaction" with Sears Canada, which was spun off from Sears Holdings Corp. in 2012. The U.S. entity, chaired by Mr. Lampert, also owns a 12% stake in Sears Canada.
More than 20 potential bidders had expressed takeover interest in a possible bankruptcy sale.
Sears Canada filed for court protection under the Canada's Companies' Creditors Arrangement Act, the equivalent of chapter 11 bankruptcy in the U.S. The company said it planned to leave bankruptcy "as soon as possible" this year and shed costs by closing roughly a quarter of its stores and laying off some 2,900 employees.
Sears Canada, one of the largest multiformat retailers in Canada, has a 225-store footprint across the country and employs roughly 17,000 people.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
July 28, 2017 10:03 ET (14:03 GMT)