Today Sears Holdings announced that it will be bringing in up to $625 million of cash through a rights offering of senior unsecured notes with warrants. ESL, the company’s largest shareholder with a 48.5% equity ownership stake, has indicated that it intends to participate in the rights offering for its pro-rata share of approximately $303 million.
Other companies such as GE, Bank of America and Goldman Sachs have raised money through a similar structure when they were seeking to bolster their liquidity as they navigated through changes in their business environment. In our case, by using a rights offering, we have offered every shareholder of Sears Holdings the first opportunity to participate equally in direct proportion to their existing ownership.
This rights offering provides Sears Holdings with additional long-term flexibility and we expect it will provide confidence to our vendors and other constituents that we will continue to generate the liquidity needed to support our business.
So far in fiscal 2014, the Company has taken a number of actions to enhance its financial flexibility, to fund its transformation, to support its operations during the holiday and post-holiday season, and to meet its obligations. The actions Sears Holdings has taken will generate at least $1.5 billion and up to $2.070 billion in liquidity in fiscal 2014, if both rights offerings are fully subscribed.
We intend to continue to evaluate and evolve Sears Holdings’ capital structure with a goal of achieving more long-term financial flexibility utilizing our rich portfolio of assets. The actions we have taken over the past month, including our announcements today, are tangible steps toward this end. We expect to take additional steps to demonstrate our financial strength and flexibility over time.
We also announced today that Sears Holdings has entered into lease agreements with Primark, a leading fashion retailer in Europe, for seven Sears locations in conjunction with Primark’s entry in the Northeastern United States. Sears will continue to have a significant presence in six of these locations with a streamlined store format of up to 100,000 selling square feet.
As you can see from the photos below, by partnering with other retailers in this manner, Sears will retain a considerable amount of space to serve our members. At the same time, Sears will generate substantial income from leasing space, which we believe will turn unprofitable or unproductive space into profitable space.
Whole Foods / Sears shared footprint in Clearwater, Fla.
Forever 21 / Sears shared footprint in Costa Mesa, Calif.
As we leverage Shop Your Way and Integrated Retail, we will continue to right-size, redeploy and highlight the value of our assets, including our substantial real estate portfolio, in our transition from an asset intensive, “store-only” retailer to a more asset light, integrated membership-focused company.
As retail continues to change, we are evolving to a model in which we serve our members in the most convenient way for them online, on mobile devices or in one of our stores. In addition, we are partnering with other retailers, brands and service providers to help our members manage their lives. Changes in consumer behavior are driving our vision and our actions.
And, we are not alone. Just last week, the Wall Street Journal1 reported that “Wal-Mart Stores appealed to investors for patience as it tries to retool its operations for shoppers who are buying more online and in smaller stores closer to home.” This follows an article2 in the same publication from the prior week about Amazon opening its first physical store to handle same day delivery indicating that “same-day delivery, ordering online and picking up in store are ideas that are really catching on…..and Amazon needs to be at the center of that.”
The agreement with Primark is a great example of how we are selectively redeploying our asset base to create long term shareholder value and how we can partner with mall owners and other retailers to create value from rationalizing our retail footprint. We are strategically transforming our retail real estate portfolio, one of the largest in the United States.
We remain highly focused on restoring our company to profitability and believe we have a framework and path to do so. As we move forward with our transformation, we do so with a tremendous asset base allowing us great financial flexibility. We possess a proven track record of being able to fund our transformation, having generated over $5 billion of liquidity for Sears Holdings since 2012.
All of this serves us well as we continue to make progress in our transformation with an eye on the future as we invest in our Shop Your Way and Integrated Retail initiatives to serve our members.
1 “Wal-Mart Warns of Rough Patch for Sales, Profits.” Wall Street Journal, Oct. 15, 2014
2 “Amazon to Open First Brick-and-Mortar Site.” Wall Street Journal, Oct. 9, 2014