Sears Sinks After Key Investor Berkowitz Plans to Leave Board

Updated on
  • Fairholme Capital executive served as director for 20 months
  • Investor stepping down from board after liquidating hedge fund

Bruce Berkowitz, Sears Holdings Corp.’s largest outside shareholder, is stepping down from the board, a move that sent the stock tumbling on Monday.

Berkowitz, the chief investment officer and founder of Fairholme Capital Management, will depart at the end of this month -- less than two years after he joined the board. Long a passive investor in Sears, Berkowitz became a director in February 2016 after saying he wanted to take a more active role at the company.

His exit from the board follows the liquidation of a Fairholme hedge fund that included Sears shares. The firm redistributed the stock to Berkowitz and clients who previously invested in the fund.

Read more on Berkowitz’s hedge fund liquidation

Fairholme said on Monday that Berkowitz always expected his board tenure to be short, but investors read the move as a sign of trouble. The 59-year-old is a longtime supporter of Sears Chief Executive Officer Edward Lampert, a fellow hedge fund manager who is the retailer’s biggest shareholder.

Shares of Sears plunged as much as 15 percent to $5.75 in New York on Monday, marking the biggest intraday drop since March. The shares had fallen 27 percent this year through the end of last week.

Berkowitz first reported a stake in Sears in 2005. He held more than 27 million shares, or about a quarter of the total, as of Oct. 12, according to data compiled by Bloomberg.

He has backed Sears during a period of shrinking sales, shuttered storefronts and mounting red ink. The once-mighty retailer has been kept afloat in recent years by Lampert, 55, who has used his own money to prop up the Hoffman Estates, Illinois-based company.

Berkowitz’s departure signals that “these guys could be on different sides of the fence,” said Bloomberg Intelligence analyst Noel Hebert. The precipitous decline in retail real estate values may also have given Berkowitz pause, Hebert said.

But a spokesman said that Berkowitz typically serves on boards for short stints.

“Mr. Berkowitz believed that his board service would enable him to better communicate Fairholme’s perspective in substantially greater depth and detail than would otherwise have been the case,” the representative said. “Mr. Berkowitz believes that he has achieved that objective.”

In a separate statement, Sears said Berkowitz’s decision to leave the board wasn’t the result of any disagreement over the company’s operations, policies or practices.

‘Great Respect’

“Mr. Lampert and Mr. Berkowitz have a longstanding partnership and continue to have great respect for each other,” Sears said.

Sears has lost almost $11 billion in the past six years, prompting the company to sell or spin off assets such as its Lands’ End clothing business. The retailer’s continued cash burn “does not build confidence or trust,” Berkowitz said on a February 2016 investor call, noting nonetheless that Sears investors “own valuable assets at historic discounts.”

He said earlier this year that there is still value in the traditional retail industry. After Amazon.com Inc. announced it would buy Whole Foods Market, Berkowitz said that deal suggests “there is a need for physical space in retailing.” Additional mergers make sense because department stores, supermarkets and malls occupy prime real estate with infrastructure already in place, he said.

Asked if he thought Amazon should buy Sears, he said: “That would be an intelligent move,” though he said he had no reason to believe that would happen.

— With assistance by Charles Stein

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