IB Net Payout Yields Model

Sears Squashes Shorts

With some 30% of the float short, it shouldn't be that shocking to see any hint of good news send Sears Holdings (SHLD) 20% higher as it did today.  With Q4'11 earnings, Sears announced the sale of 11 prime mall locations for $270M. Combined with a rights offering and spin-off of the Hometown and outlet for $400-500M, Sears has plans to quickly raise liquidity by $1B.

So while all the market experts focus on yet again disappointing earnings, Sears squashed the shorts that continue to fail to realize the substantial assets the company controls. For whatever reason, investors continue to forget that the valuation of a company should be the net assets plus the discounted cash flows or earnings.

In the case of Sears, most people agree that future cash flows are a big question market, but most of those people continue to ignore the vast unencumbered real estate holdings and valuable brands.

The reason for the huge jump today is that the add liquidity and especially the ability to sell so few stores for so much cash caught many shorts off guard. Many thought the company could be headed to bankruptcy. Not so fast says Chairman Eddie! Apparently many a trader missed those $160M shares purchased by Eddie when the stock slumped to $30 on liquidity fears. He has already doubled his money in just a few months.

Now I wonder if Eddie will have the cash to finish some share buybacks to further reduce the float and squeeze even more shorts. As long term investors have known for a long time, Eddie had a plan to begin monetizing these assets and the theory was that he'd wait until the float had been shrunk very low. With his big purchase, now appears to be the time.

Highlights from the announcements today:

Real Estate Transaction
  • definitive agreement for the sale of eleven Sears full line store locations to General Growth Properties for a purchase price of $270 million. ($24.5M/store - though reportedly the HA property went for $250M alone)
  • transaction is expected to close in the next 45 to 60 days
  • stores will continue to operate as Sears locations into 2013 with final closing dates to be determined and announced later this year.
  • though includes a Hawaii store, the list also includes stores in IA, OK, TN, and UT.

 Separation of Hometown and Outlet Businesses

  • separate its Sears Hometown and Outlet Businesses and certain hardware stores through a proposed rights offering that is expected to raise approximately $400 million to $500 million.
  • rights will entitle holders to purchase shares in the combined Sears Hometown and Outlet Stores businesses and certain hardware stores and will be transferred to holders of Sears Holdings common stock.
  • Edward S. Lampert, Chairman of the Board of Directors of Sears Holdings and Chairman and Chief Executive Officer of ESL Investments, Inc. (together with its affiliated funds, ESL), has advised us that ESL, which is Sears Holdings' largest shareholder, intends to exercise its subscription rights in full at the anticipated valuation, subject to the successful completion of the transaction process. 

Q4'11 Earnings

  • Just click the link and read the report. Too ugly to repost!

Links to other blog posts and Seeking Alpha articles on SHLD:

Sears Holding: Impossible To Cover
Is Sears Holdings Finally Turning Into A REIT?
Sears Holdings Externalizing Brands Could Be Major Catalyst For Stock
The Death of Sears Holdings Is Awfully Premature

Disclosure: Long SHLD. Please review disclaimer page for more details. 


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