Canadian Retail Thread

[SSLL]

Sears could be worth more, but would Lampert pay it?
Investors think he'd boost value: analyst

MARINA STRAUSS
RETAILING REPORTER
Hedge fund giant Edward Lampert is his own worst enemy in trying to persuade shareholders to back his $835-million offer to take Sears Canada Inc. private, industry observers say.

That's because the controlling shareholder of U.S. parent Sears Holdings Corp. is seen as a savvy businessman who can improve the Canadian division, and increase its value, retailing analyst George Hartman at Dundee Securities Corp. said. Shareholders figure the company will be worth more than the offer -- and want to stick with him rather than bail out. Already the parent is performing better in his hands.

"They think Mr. Lampert is an investment genius," Mr. Hartman said of the man who has made a lot of money for others and engineered the takeover of both Kmart and Sears.

Mr. Hartman and others predict that Mr. Lampert will dig in his heels and refrain from boosting his $16.86-a-share offer despite opposition from some key -- and powerful -- shareholders.

Yesterday, Sears Holdings extended the offer until March 31. It had only managed to increase its 54-per-cent stake in Sears Canada by 9.5 percentage points, giving it just over 63 per cent of the Canadian division's shares.

Mr. Lampert is playing hardball. Sears Holdings said it will appoint a majority of insiders to the Sears Canada board of directors; currently, the majority are independent directors, but all six said they will not run for re-election at the annual meeting this spring, an apparent protest over how they felt they had been browbeaten by the parent.

Moreover, Mr. Lampert said that Sears Holdings will push to end the Canadian unit's 6-per-cent quarterly dividend if it fails to acquire a majority of the minority Sears Canada shares. That would mean dropping about $25.8-million in annual dividends, including roughly $16.3-million for the parent.

The company argued that Sears Canada "will face an increasingly competitive Canadian retail environment without the financial and operating benefits of being owned 100-per-cent by Sears Holdings" if the offer is unsuccessful."

The parent has criticized the Canadian operations for their weak performance in recent years, although it enjoyed a much improved fourth quarter in 2005.

Sears Holdings believes its offer represents "a full and fair price," vice-chairman Alan Lacy said in a statement, adding the company does not intend to extend the offer again if a majority of the minority investors fail to back the deal.

But some analysts continue to counsel investors not to tender to the offer. And Sears Canada's share price suggested they would not: On the Toronto Stock Exchange, the shares remained well above the offer, rising 5 cents to close at $18.05.

Ron Mayers, head of alternative strategies at Desjardins Securities, said shareholders voted "a resounding no" to the bid and will probably balk at anything less than between $19 and $20 a share.

Sears Holdings' takeover attempt has revealed a rift between the Sears parent and its Canadian unit. In February, Sears Canada's board of directors recommended against the parent's offer, saying it was too low. The rejection was based on an opinion from adviser Genuity Capital Markets, which valued Sears Canada at between $19 a share and $22.25 a share. A few weeks later, the independent directors signalled they would step down.

Last week, Sears Holdings said that most of the senior executives at Sears Canada were tendering to the offer, or selling their shares. Nevertheless, two large shareholders, Vornado Realty Trust and Pershing Square Capital Management LP, have resisted the offer.