Sears Holdings Agrees to Buy Sears Canada Stake from Pershing Square Fund

Sears Holdings Corp., the biggest U.S. department-store company, agreed to buy William Ackman’s hedge fund’s stake in Sears Canada Inc., in a move that would allow it to take the company private.

Sears Holdings will pay C$559.8 million ($556.7 million), or C$30 a share for Pershing Square Capital Management LP’s 18.7 million shares, about 17 percent of Sears Canada, according to a statement today. That will give Hoffman Estates, Illinois-based Sears Holdings about 90.4 percent of the Canadian unit.

In passing the 90 percent ownership threshold, Sears Holdings has the right to acquire the remaining 10 percent, according to the Canada Business Corporations Act, said Richard Powers, a lawyer and executive director of MBA programs at the University of Toronto’s Joseph L. Rotman School of Management.

If Sears Holdings decides to buy the remaining shares, the rule compels the minority owners to sell their stock to Sears Holdings, which can take the corporation private. Because Sears Holdings hasn’t initiated a formal takeover bid for Sears Canada, it isn’t limited by a 120-day requirement to win the support of 90 percent of shareholders, Powers said in a telephone interview.

Bethany Norvell, a spokeswoman for New York-based Pershing, said Ackman wasn’t available for comment. Kimberly Freely, a spokeswoman for Sears Holdings, declined to comment beyond today’s statement.

Sears Canada Declines

Sears Holdings rose $9.12, or 8.1 percent, to $122.01 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 46 percent this year. Sears Canada fell 52 cents, or 1.8 percent, to C$29 in Toronto trading. The stock has gained 20 percent this year.

Sears Holdings’ C$30 a share offer is 1.6 percent more than the Canadian unit’s closing price yesterday. The deal is scheduled to close April 27.

Pershing Square founder Ackman, the second-largest investor in Sears Canada, is parting ways with the retailer for two- thirds more than the price offered by Sears Holdings in a failed takeover four years ago.

In 2006, Sears Canada rejected Sears Holdings’ offer to buy the 46 percent of the company it didn’t already own. Sears Holdings final bid of C$17.94 a share was too low, Ackman said then. He was among investors who accused Sears Holdings of bullying minority shareholders and asked regulators to block the acquisition.

Sears Holdings Stake

In an early 2009 letter to clients, Ackman said he sold most of his stock in Sears Holdings in 2008, at least 6.2 million shares. In a regulatory filing in February of this year, Pershing didn’t disclose owning any Sears Holdings shares. The filings don’t show non-U.S. securities.

Sears Holdings also said its net income for the quarter ending May 1 will be as much as $35 million, or at most 31 cents a share, compared with $26 million, or 21 cents, a year earlier. The chain plans to report fiscal first-quarter results on or before May 20.

Same-store sales at the company’s Kmart unit climbed 3.2 percent in the quarter through April 21 on purchases of clothing, home goods and toys. Domestic sales at Sears’s namesake locations rose 0.3 percent, the company said.

To contact the reporters on this story: Sarah Rabil in New York at srabil@bloomberg.net; Joe Schneider in Toronto at jschneider5@bloomberg.net.

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