There were three transactions that impacted Sears Holdings shares in 2014. The simple, year-to-date return from owning shares in SHLD through Dec. 26, 2014, is positive 6.6% (as can be seen in the chart below) when properly adjusted for the Lands’ End spin-off and the two rights offering transactions.
In order to evaluate Sears Holdings’ stock price performance over the period from Dec. 31, 2013 through Dec. 26, 2014, one needs to consider not only the price of the stock of SHLD, but also the trading value of any securities received during this time period compared to the value paid for those securities. Therefore, one needs to compare the closing price of a share of SHLD on Dec. 31, 2013 with the value of the portfolio of securities that a SHLD shareholder would own today assuming they (1) participated fully in both rights offering transactions which occurred in this time period and (2) continued to hold common stock of Lands’ End which was received in connection with its spin-off to SHLD shareholders.
If one only measures the change in price of a share of SHLD, without any consideration of the other securities, it would be as if one ignored dividends paid, stock splits or any other types of corporate activities that impact the trading price of any company’s stock from the beginning of a time period to the end during which such activities occurred.
As can be seen in the chart below, the current price of a SHLD share (in an apples-to-apples comparison from year-end 2013 to today) should include the increase of $20.37 per SHLD share resulting from the sum of (1) the $16.56 per SHLD share gain in value from the common stock received in connection with the spin-off of Lands’ End and (2) the $3.81 per SHLD share increase in value from the securities received in connection with the two rights offerings (after netting out the $9.44 per share cost to a SHLD shareholder who fully participated according to their pro rata interest). The net result to a SHLD shareholder on a year-to-date basis from December 31, 2013 to today is an unrealized gain in value of $3.86 per SHLD share or 6.6%.
Rob Schriesheim is Executive Vice President and Chief Financial Officer for Sears Holdings.
2 On April 4, 2014, we separated the Lands’ End business via a spin-off transaction in which we distributed to our shareholders 0.300795 shares of Lands’ End for every 1 share of Sears Holdings. The market value per SHLD share is computed by multiplying the market value per share of Lands’ End on 12/26/14 of $55.06 by the distribution ratio of 0.300795 which yields a market value per SHLD share of $16.56.
3 Under the terms of the rights offering for common shares in Sears Canada, Sears Holdings distributed to its stockholders, at no charge, one subscription right for every share of Sears Holdings common stock held as of October 16, 2014. Each subscription right entitled the shareholder to purchase 0.375643 common shares in Sears Canada at a purchase price of U.S. $9.50 per share. To compute the cost per SHLD share, we multiply the subscription cost of $9.50 by the distribution ratio of 0.375643 which yields a cost of $3.57 per SHLD share. The market value per SHLD share is computed by taking the product of the closing share price of shares in Sears Canada on 12/26/14 of $CAD 11.00, the CAD/USD exchange rate on 12/26/14 of 0.8597 as reported on www.oanda.com and the distribution ratio of 0.375643, which yields a market value of $3.55 per SHLD share.
4 Under the terms of the rights offering for $625 million of senior unsecured notes with warrants, Sears Holdings distributed to its shareholders one transferrable right for every 85.1872 shares of the Company’s common stock held as of October 30, 2014. This translates into 0.0117 rights for every 1 share of Sears Holdings common stock. Each right entitled the holder to purchase, at a subscription price of $500, one unit, consisting of one 8% senior unsecured note and 17.5994 warrants. Converting this to a per SHLD share basis, every share of SHLD, would entitle the holder to purchase 1/85.1872 = 0.0117 senior unsecured notes and 0.0117*17.5994 = 0.2066 warrants at a price of 0.0117*$500 = $5.87. To compute the market value per SHLD share of the 8% Senior Unsecured Notes, we take the product of the face value of the notes of $500, the price of the notes relative to par of 93.75% quoted by TRAC on 12/26/14 and the distribution ratio of 0.0117 which yields a market value of $5.50 per SHLD share. To compute the market value per SHLD share of the warrants, we take the product of the market price of the warrants of $20.30 on 12/26/14 and the distribution ratio of the warrants of 0.2066 which yields a market value of $4.19 per SHLD share.
5 Represents subscription costs assuming full pro rata participation in both rights offerings.
6 Represents the sum of the current trading value of Lands’ End common stock received in connection with its spin-off plus securities received in connection with both rights offerings assuming full pro rata participation in both rights offerings.
The stock price performance for the stock of SHLD is not necessarily indicative of, nor intended to forecast, the potential future performance of the stock of SHLD. For more information regarding the stock of SHLD, we encourage you to visit the Investor Information section of the Sears Holdings Corporation website at http://www.searsholdings.com/invest.