Specifically, the shareholders object to the sale of valuable stores that the company happens to own to real estate investment trusts. Two big store sales to REITs have been announced so far, and both are joint ventures with companies that own malls and other retail real estate. Current Sears shareholders will have the opportunity to invest in the real estate ventures, but the sale of the buildings doesn’t strike the shareholders who filed the lawsuit as a prudent business decision.
The Chicago Tribune quotes the lawsuit, noting that the shareholders taking part believe that selling some buildings for $2.5 billion isn’t really going to help Sears Holdings. Remember that the company lost $1.7 billion last year, and that was considered an improvement.
From the lawsuit:
Sears and its stockholders would receive a severely inadequate cash payment that the defendant Lampert-controlled company may use to cover operating losses and debt obligations for another year or so, before stockholders are left holding the bag in an insolvency widely viewed as inevitable if the proposed transaction occurs.
The shareholders seem to believe that in this scenario, Sears Holdings will inevitably fail. Its assets that are actually worth anything have been spun off into separate ventures, or sold to the real estate investment trusts. Once everything of value has been sold or spun off, Sears Holdings itself would have very little value, and these shareholders see its failure as “inevitable.”
That’s just one scenario, though. It’s also possible that the cash infusion and renting out parts of their massive stores will be beneficial to Sears and Kmart, which will find their way in a changing retail environment and flourish as a multichannel merchant with a weird obsession with signing people up for its rewards program.
UPDATE: Sears has issued a statement about the lawsuit.
The complaint contains numerous factual misstatements and is legally without merit. The company plans to contest it vigorously and believes the proposed real estate investment trust transaction will provide substantial benefits to Sears Holdings and its shareholders.
Sears lawsuit alleges store sales to benefit CEO [Chicago Tribune]