Lampert, Sears set to clash with creditors in court

By RetailFOXBusiness

Sears Chairman Eddie Lampert wins $5.2 billion auction to save company

FBN’s Hillary Vaughn discusses how Sears Chairman Eddie Lampert won the bankruptcy option to save the company from liquidation.

While former CEO Eddie Lampert is hoping to give bankrupt retailer Sears another chance at life, one group is not going to let the deal go through without a fight.

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Creditors, along with the U.S. government, are set to protest Lampert’s $5 billion rescue bid in court on Monday, alleging he crafted the deal in a way that would wrongfully give him control of both the Kenmore and DieHard brands. The claim is that Lampert has made strategic decisions that have allowed him to benefit as the company declined.

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Last weekend, the federal Pension Benefit Guaranty Corp. (PBGC) filed documents with U.S. Bankruptcy Court protesting Lampert’s $5 billion bid, saying it doesn’t account for a very large funding gap for pension plans that has existed for years.

The company’s long-term pension obligations have been underfunded by more than $1 billion for years – PBGC recently said they are 64 percent funded. PBGC insures pensions on behalf of the federal government and protects workers plans – making it Sears’ largest unsecured creditor.

In anticipation that Sears would go under, PBGC attempted to protect itself by taking stakes in the Kenmore and DieHard brands, according to The Wall Street Journal, however Lampert’s rescue deal would eliminate its interests in those brands.

Last month, creditors requested permission to sue Lampert and his hedge fund ESL Investments for allegedly stripping the best assets out of the company and contributing to its demise.

ESL declined to comment on PBGC's recent court filing, but it has disputed claims made by creditors, calling them "misleading or wrong."

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Last month, Sears accepted a $5.2 billion bid from Lampert’s hedge fund ESL Investments, saving the department store from potential liquidation. The deal, which still requires approval from a bankruptcy court, is expected to keep about 400 stores open and maintain as many as 50,000 jobs.

As previously reported by FOX Business, the retailer faces a tough road ahead if Lampert’s deal is approved in court. Sears’ severely diminished store count presents a number of distinct challenges, including impacting its ability to attract a core customer, diminishing its ability to compete with rivals, amid other obstacles related to its reorganization process.