Sears Gains as Investor Asks Chain to Consider Going Private

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  • Memento SA also complained about ‘excessive’ short selling
  • Firm sends open letter to Sears board calling for safeguards

The Death of the Department Store

Sears Holdings Corp. shares rose after investor Memento SA recommended the retailer consider going private, saying that “excessive” short selling has hammered the stock.

The firm, which serves as investment manager for Switzerland’s Spadone family, also called for an investigation into recent surges in short selling. Memento said in an open letter to Sears’s board that it owns nearly 2 million shares and believes in the long-term value of its stores, brands and employees.

“Sears has the potential for strong financial performance once it addresses a few critical concerns including, among others, the high volume of short-selling activity in its shares,” Memento Chief Executive Officer Alessandro Mauceri said in the letter.

Through Memento is a relatively small investor in Sears, the idea of going private brought a spark of optimism to the battered stock on Thursday. It climbed as much as 5.1 percent to $4.35.

The shares had lost more than than half their value this year, hurt by steadily declining sales at the Sears chain and its Kmart brand. A go-private deal, however unlikely, would bring a payday to investors after years of watching the shares tumble.

‘Constructive Dialogue’

Memento is seeking a “constructive dialogue” with Sears’s board and management. The firm is working with law firm Olshan Frome Wolosky LLP on the effort.

Mauceri also urged Sears to form an independent board committee to safeguard the equity ownership interests of its investors. He also called for the Securities and Exchange Commission to investigate whether Sears’s short sellers -- who place bets that shares will go down -- violated regulations. In the meantime, he says the SEC should temporarily halt short selling in the stock.

Short interest as a percentage of total outstanding Sears shares has risen to almost 49 percent from about 44 percent two months ago, according to data from financial analytics firm S3 Partners. Short sellers borrow shares, sell them, buy them back at a lower price and profit from the difference -- unless the stock rises.

Memento wants Sears to provide “adequate assurances that it is taking the steps necessary to effectively address the urgent problem of naked short selling in its shares by establishing sophisticated internal controls and seeking appropriate regulatory action,” Mauceri said.

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