Lampert Cuts Sears Stake Below 50% to Meet Redemptions

Edward Lampert, the investor who for the past eight years has tried to turn around Sears Holdings Corp., cut his stake in the retailer below 50 percent to meet redemption requests from his hedge-fund clients.

Lampert’s ESL Investments Inc. owns 48 percent of the Hoffman Estates, Illinois-based department store chain, down from 55 percent reported as recently as October, according to a filing yesterday with the U.S. Securities and Exchange Commission.

Sears has been struggling since Lampert, 51, engineered the merger of Kmart Holding Corp. and Sears, Roebuck & Co. in 2005. The company has posted 27 straight quarterly sales declines. Lampert, who took over as chief executive officer in February, distributed his Sears shares rather than cash to investors exiting his fund, forcing the billionaire to surrender majority control.

“We will continue to focus on the transformation of Sears Holdings into a membership-focused company and on creating long-term value for its shareholders,” Lampert said in an e-mailed statement. “My significant personal ownership in the company is a sign of my confidence and alignment with all shareholders.”

November same-store sales appear to be negative in the mid-to-high single digits, with Sears continuing to lose share in home appliances, Daryl Boehringer, an analyst at Cleveland Research, wrote in a report today. Cleveland has a neutral rating on the stock, the equivalent of a hold.

The shares fell 8.3 percent to $50.92 at the close in New York. The shares have gained 23 percent this year, compared with a 26 percent rise for the Standard & Poor’s 500 Index.

Executive Infighting

Lampert divided Sears into more than 30 units, each with their own presidents, chief marketing officers, boards of directors and profit-and-loss statements, which former executives say has caused infighting.

He said earlier this year that such a decentralized structure provides better information over time, which helps decision-making and accountability. As CEO, Lampert has sought to boost online sales and retain customers with loyalty programs while controlling costs. In its last fiscal year, Sears’s Web sales grew 17 percent, while U.S. same-store sales fell 2.5 percent.

Sears has also been selling and spinning off its assets as the company’s cash pile shrinks. The dwindling resources are making it harder for Sears to improve the outdated stores that have contributed to its loss of customers.

Lands’ End

The company said in October it’s considering separating its Lands’ End apparel and automotive service-centers units. Spinning off Lands’ End and selling the auto centers may raise as much as $2.5 billion, according to Matt McGinley, a managing director at International Strategy & Investment Group in New York.

With Sears struggling, clients have been pulling money out of ESL Partners LP, the primary hedge fund run by ESL Investments. In June, Lampert used $393 million of shares in AutoNation Inc. to meet client redemptions, according to regulatory filings at the time.

The decline in ESL’s Sears stake stemmed from a distribution of the retailer’s shares to investors in Lampert’s main hedge fund, according to yesterday’s filing. Lampert has previously issued assets rather than cash to investors who wish to withdraw their capital. This permits the fund to avoid selling shares and incurring capital gains that would be taxable to the fund’s other investors.

‘Bad Holiday’

“It makes sense that you would want your shares back before what we think will be a pretty bad holiday,” McGinley said today in a telephone interview.

The new block of shares distributed could reduce the costs of shorting Sears if sold on the open market, McGinley said, which could create further pressure on the stock.

Yesterday’s filing shows that ESL Investments, based in Bay Harbor, Florida, distributed Sears shares to investors who “elected to redeem all or a portion” of their holdings in ESL Partners. ESL Partners’ holdings in Sears declined to 21.99 million shares from 29.41 million.

Lampert, who is also the retailer’s chairman, continues to personally hold about 25 million Sears shares and control a small number of the retailer’s shares held in other partnerships. His total stake, including Sears stock controlled through ESL Investments, now equals 51.6 million shares, according to the filing.

Steven Lipin, a spokesman for Lampert who works for Brunswick Group LLC, declined to comment beyond the statement.

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