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Jobs, Jobs, Jobs: Why Lampert's Bid Won Contest for Sears

Jobs, Jobs, Jobs: Why Lampert's Bid Won Contest for Sears

(Bloomberg) -- Fifty thousand jobs. Fifty thousand jobs. Fifty thousand jobs. Just keep saying that over and over, much like Eddie Lampert’s team, and you’ll have one of the key reasons the hedge fund manager was able to fend off liquidators against long odds for control of Sears.

Lampert’s ESL Investments consistently raised the potential of mass dismissals in public statements, letters and court filings to keep alive a sometimes-wobbly bid that was rejected more than once. Sears Holdings Corp. initially pegged the number of jobs at 68,000 when the retailer went bankrupt in October; it was later trimmed to 50,000 as the rescue plan took shape, and then 45,000 after Sears announced additional store closures.

The actual payroll may be lower still, but no matter: The huge tally made its mark, spurring fear among participants ofbeing blamed for putting so many people out of work if Sears liquidated. When Lampert’s ESL Investments listed the reasons that Judge Robert Drain should approve the sale in its Feb. 4 filing, jobs were in the first sentence of the first point.

For liquidators, “it’s almost like starting the race 10 yards behind,” said Matthew Mason at restructuring firm Conway MacKenzie, who worked as in-house counsel for Kmart prior to its 2005 merger with Sears. In theory, bankruptcy law is supposed to make maximizing payments to creditors an absolute priority, but this can be put aside when there’s a compelling reason, Mason said -- and the huge headcount carried a lot of weight.

Jobs, Jobs, Jobs: Why Lampert's Bid Won Contest for Sears

“Lampert’s advantage was that there was no other plan that contemplated keeping these jobs,” he said.

Representatives for Sears, based in Hoffman Estates, Illinois, and for ESL declined to comment. ESL has pointed to previous rescue efforts and investments that show its commitment to keeping Sears in business and its staff employed. Both ESL and the judge have said the deal approved Feb. 7 was a better outcome overall for the creditors, brushing off arguments that they’d get more from a liquidation.

Drain made no secret of his concern. “It would be a very good thing if the debtors could reorganize in a way that would save all or substantially all of the remaining jobs of the workforce,” he said at a Jan. 18 hearing. Later on Feb. 6 as he pushed the case toward conclusion, Drain asked an adviser for the creditors, “Do you know how many people live week to week on their paycheck? Do you care?”

To some creditors, it looked like would-be bidders had no chance from the start. Sears didn’t seriously pursue a sale of assets or provide data needed to craft a credible offer, the unsecured creditors complained in a court filing in a last attempt to derail Lampert.

One Horse

The process “was exclusionary and noncompetitive, amounting to only a one-horse race to transfer Sears and its valuable assets and operating businesses to ESL,” wrote Saul Burian, a Houlihan Lokey attorney representing those creditors, in a Feb. 6 filing. Drain rejected that notion, ruling shortly after that the process was fair.

Jobs were a very significant consideration for the court, the board and its advisers, as well as the creditors committee, Burian said via email. Under his clients’ plan, he said, Sears would have sold non-retail operating businesses as going concerns, saving at least 10,000 to 12,000 jobs.

How long Lampert’s plan will keep workers employed is open to question, Mason said. More than 150 of the stores Lampert is buying are poor performers and may not survive, Mason said, adding he hasn’t seen a business plan from Lampert that’s fundamentally different from before the bankruptcy.

In the end, “his deal may not save those jobs,” Burian said. “His deal is likely a liquidation for his benefit.”

--With assistance from Steven Church.

To contact the reporter on this story: Rebecca Choong Wilkins in New York at rchoongwilki@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net;Nikolaj Gammeltoft at ngammeltoft@bloomberg.net

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