Sears hires consultancy M-III for potential bankruptcy filing

11 October 2018 Authored by Consulting.us

Embattled US retailer Sears Holdings Corp has hired New York-based corporate advisory M-III to prepare for a possible Chapter 11 bankruptcy filing in advance of a $134 million debt payment due Monday.

Sears has had a rough go in the last decade, crushed by the stiff competition from discount retailers WalMart and Target, as well as the rising popularity of Amazon and online shopping. A firm that pioneered catalog shopping hasn’t been able to able to weather the storm of essentially digitized catalog shopping, a customer shift from ‘middle-class’ department stores, and the competition of discounters.

Following its merger with Kmart in 2004, Sears Holdings Corp’s profits peaked at $1.5 billion in 2006. By 2010, profits had dwindled to nearly nothing, and from 2011 to 2016, the retailer lost $10.4 billion. From 3,500 physical stores in 2010, the number of Sears stores in the US fell to 695 in 2017. In a bid to become profitable again, the company has been closing stores, selling off brands and taking on debt.

Earlier this year, Sears Canada closed its doors for good, while Sears’ divisions in Mexico had been sold off in years previous. Today, there are 506 Sears stores and 360 Kmart stores in operation in the US as of August 4, but their future remains uncertain. In May, the firm said that it plans to shutter a further 72 locations by the end of the third quarter. In the meantime, Sears continues to lose money.Sears hires consultancy M-III for potential bankruptcy filingNow, the embattled retailer has hired boutique advisory firm M-III Partners to work on a possible bankruptcy filing, according to a report from The Wall Street Journal. The move comes in advance of a looming $134 million debt repayment on Monday that the money-hemorrhaging firm may fail to make.

New York-based M-III is headed by Managing Partner Mohsin Y. Meghji, and offers advisory support in the areas of operational improvement, turnaround and restructuring, and interim management, among others.

Relatedly, Sears announced earlier this week that it had added restructuring expert Alan Carr to its board. Carr is the CEO of Drivetrain LLC, an NYC-based turnaround and restructuring consultancy.

Though M-III is said to have been working on a filing for the past few weeks, Sears could still avoid an in-court restructuring. A bankruptcy filing is something that CEO and major shareholder Eddie Lampert, would like to avoid. Lampert recently put in an offer worth up to $480 million for the retailer’s Kenmore appliance brand, as well as its home services business.

The CEO and ESL Investments hedge fund leader would prefer to restructure Sears’ debt without filing for bankruptcy, since retail bankruptcies often lead to liquidations. Previously, Toys R Us went into Chapter 11 in 2017, but ended up liquidating in 2018 after it failed to reach a deal with creditors.

Lampert said Sears should take steps to reduce its current debt load of $5.6 billion to a more manageable $1.2 billion. He believes the retailer can get more value for its assets by selling them off as an operational company, rather than as one in bankruptcy protection. Lampert hopes a greater streamlining of the once-giant company – including further sale of real estate and assets – could make it profitable again.

The rumbling around a bankruptcy filing, meanwhile, sent investors scrambling for the exits, as Sears shares dipped almost 30% to 18 cents in pre-market trading.

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