A plan to keep Sears Holdings Corp. alive and tens of thousands of people employed was approved Thursday by a federal Bankruptcy Court judge.
The Santa Rosa Plaza Sears store was among the 10 Sears stores in California closed in the last days of 2018. Also to close will be an additional seven Kmart stores, none in the North Bay.
Sears’s remaining stores in the North Bay include Sears Hometown Store in Napa, Sears Appliance and Repair in San Rafael, and Kmart stores in Petaluma and Lakeport. The Kmart store in Santa Rosa was destroyed in the October 2017 wildfires.
Judge Robert Drain of U.S. Bankruptcy Court for the Southern District of New York on Thursday approved Sears Chairman and former CEO Edward Lampert’s bid to buy the retail chain’s assets for $5.2 billion.
Lampert’s purchase, made through his hedge fund, ESL Investments, is intended to keep 425 Sears and Kmart stores open, preserving some 45,000 jobs. It was the only bid submitted in an auction that would have kept the once-mighty department store giant in business and avoid liquidation.
Lampert’s plan was opposed by a committee of unsecured creditors skeptical that Hoffman Estates-based Sears will be any more successful after exiting bankruptcy. The committee pushed for a liquidation, arguing that shutting down the company and selling its assets could recover more of what Sears owes.
In his hour-long ruling, Drain said he determined the sale “makes good business sense” and rejected the committee’s arguments that the sale process was flawed or that liquidation would result in a better and higher transaction. Throughout the lengthy proceedings, Drain appeared to keep the preservation of jobs top of mind.
Still unresolved is a dispute between Sears and ESL over which is responsible for paying $166 million for inventory received after Sears filed for Chapter 11 bankruptcy on Oct. 15. Although Drain did not have jurisdiction to decide the issue, he gave an advisory opinion in favor of Sears’ claim that ESL is responsible for those liabilities.
“I am more than reasonably confident that that would be the result in a contested manner brought before the court,” Drain said.
Drain’s approval of Lampert’s bid came the same day that Sears’ largest unsecured creditor, Pension Benefit Guaranty Corp., withdrew its objection after reaching an agreement over $1.7 billion it said it was owed.
The federal agency, which guarantees individuals’ pension plans if an insured plan shuts down without enough money to cover benefits, reduced its claim to $800 million, Sears attorney Ray Schrock told the judge Thursday.
The agreement clears the way for the insurer to assume responsibility for Sears’ two pension plans, the agency said in a statement. The agency said last month that it would seek to take over Sears’ plans, which cover more than 90,000 people.
The judge’s decision saves Sears from liquidation, but still unanswered is whether Lampert can reinvigorate a retail chain that many consumers have fond memories of, but no current relationship with. Lampert has said he wants to invest in smaller stores and those that are profitable, with a focus on popular categories like appliances and repair services.
Retail consultant Neil Stern is skeptical that the plan will succeed, given Sears’ long history of declining sales. Lampert, he said, “has nine lives, it seems.”
“How long are these good locations going to remain good,” said Stern, senior partner at Chicago-based McMillan Doolittle. The company’s future strategy seems to be exemplified by a new smaller-format store that opened last year in Oak Brook, which focuses on merchandise such as appliances, tools and women’s sportswear.