Former and current Sears and Kmart employees have joined the chorus of critics of ESL Investments CEO Eddie Lampert’s effort to take a truncated version of the retailer out of bankruptcy in a $5.2 billion sale.
The proposed deal, which Lampert says would keep about 425 stores open and 45,000 employees working, is expected to be finalized this week in federal bankruptcy court, following three days of hearings.
On Monday, as hearings opened, nine workers worried about the future of Sears under Lampert’s continued leadership sent a letter to federal judge Robert Drain, who is overseeing the bankruptcy in the southern district of New York bankruptcy court in White Plains.
The workers, who are part of an activist nonprofit organization of retail workers, asked the judge to ensure that both employees and community representatives have a seat on the board of the new company that is expected to be created, along with severance for former workers “who have not been fairly compensated.” They also want the chairman and CEO roles to be separated in the new company.
Until Sears filed for bankruptcy, Lampert had served as both Sears chairman and CEO since 2013. In bankruptcy, he relinquished the CEO job.
Sears employees are not creditors, so they have no legal standing in the bankruptcy, which has become a battle between Lampert and the company’s unsecured creditors, including the Pension Benefit Guaranty Corp., the U.S. government agency that is responsible for paying pensions in the event of a bankruptcy. It has sought to block the deal, saying it has about $1.74 billion in unfunded pension obligations to former Sears employees.
The unsecured creditors say a liquidation of the remaining Sears assets would provide a better return on their claims.
Lampert’s $5.2 billion bid includes $1.3 billion from Lampert in the form of a credit bid, in which he forgives the $1.3 billion Sears owes his hedge fund. As a condition, Lampert had sought a release from potential claims of creditors.
However, the final agreement allowed them the right to sue ESL and Lampert over allegations of fraud, breaches of fiduciary duty, and taking illegal dividends out of the company that they argue contributed to its demise. Among the deals being scrutinized are the spinoff of Lands’ End and the creation of Seritage, a real estate investment trust that bought Sears-owned real estate and turned the stores into renters.
In the hearing Wednesday, Sears defended its decision to choose Lampert’s bid over liquidation offers, with its chief restructuring officer in charge of the Sears bankruptcy saying it would be a better deal for creditors, workers and vendors than liquidation, according to a report in USA Today.
Unlike the unsecured creditors who prefer a liquidation, the workers want to see Sears revived as a going concern.
“Unfortunately, Eddie Lampert’s bid is the only one that does not lead to liquidation. The Unsecured Creditors Committee has made major allegations about Lampert’s ‘years of misconduct’ and deliberate profiteering from Sears at the expense of others. While the UCC’s motions are compelling, it does not center us, the employees, and our livelihoods, and seeks to destroy Lampert’s bid for its own gain,” they wrote.
But the workers are skeptical about Lampert’s intentions, given his history at the company, saying Lampert has “stripped Sears of its assets and sold them off piece by piece to corporations he controls or has major stakes in” and referred to the Institutional Investor article that calculated that Lampert had made more than $1 billion so far on his Sears investment.
At the same time, the workers wrote, he “destroyed more than 250,000 jobs in the process, put countless families in financial harm, closed the vast majority of Sears and Kmart stores and put the company on the brink of the liquidation.”
“For the sake of our jobs, our coworkers, our communities, and our families, we want Sears Holdings to succeed, not be a pawn in Lampert’s game,” they wrote. “The reality, as we know from our lived experience, is that Lampert has been putting the company through the longest liquidation in retail history. If he regains control of Sears, he will merely continue that slow burn.”
They also appealed to Judge Drain’s prior rulings on behalf of workers. “We saw how you attempted to bargain a fair deal for unionized workers during the Hostess bankruptcy. We are reaching out in the hope that you will do the same for all Sears and Kmart workers. We love our company and want to see it prosper again,” they wrote.
After their names, the group signed the letter “Current and former Sears and Kmart employees, RiseUpRetail, Organization United for Respect.” The group also includes former Walmart and Toys ‘R’ Us employees.
ESL and Lampert did not respond to the workers’ specific demands. But a spokesman issued the following statement: “Our going concern bid offers Sears the only long-term opportunity to save and create jobs, honor the extended warranties that were purchased by so many customers, generate new volume and grow. We intend for the new company to operate as many Sears and Kmart stores as reasonably possible, including new smaller stores that emphasize our stronger capabilities. Continuing to operate a meaningful network of stores is essential to achieving our goal of returning Sears to profitability.”
