Sears Holdings announced Thursday that it plans to raise $380 million by selling most of its 51 percent stake in Sears Canada by early next month, shoring up its cash ahead of the crucial year-end shopping season.
Sears approved a rights offering of up to 40 million Sears Canada shares, meaning existing Sears shareholders can buy the shares at a discount to the current market price.
Sears Chairman and CEO Eddie Lampert and his firm ESL Investments, the company’s largest shareholders, plan to fully exercise their subscription rights, which will add almost half the money, $168 million, to Sears coffers in mid-to-late October, the company said.
Faireholme Capital Management, owned by investor Bruce Berkowitz, whose funds own 24 percent of Sears, expects some of its clients to participate in the rights offering, assuming it goes through, Sears said.
Neither has yet entered into an official agreement to do so.
The Hoffman Estates-based retailer has been bleeding cash for years, and has been selling or spinning off business units, including its Lands’ End, to stay afloat. It has been trying to sell its stake in Sears Canada for some time. A year ago, Sears put the market value of its 51 percent stake in the company at $675 million.
If the rights offering of the 40 million Sears Canada shares goes as planned, Sears will have generated $1.45 billion in liquidity this year to help fund operations as it attempts to transform from a department-store chain to a members-based shopping program driven by its Shop Your Way loyalty program. The company had said earlier this year that it aimed to raise $1 billion.
Last month, Sears got a short-term secured loan of $400 million from ESL to help fund its operations through the year-end shopping season, a measure meant to increase confidence that instead sent Sears’ stock price plummeting.
In a separate release, Sears Canada said it intends to cooperate with the rights offering and is extending the licensing agreement to continue to use the Sears name.
Sears Canada also has been struggling financially as competitors like Target entered the Canadian market, and late last month its CEO, Douglas Campbell, resigned after less than a year on the job.
Each Sears Holdings shareholder will have the right to buy one share in Sears Canada for each share held, at a price of $10.60 in Canadian dollars. Sears Canada stock closed at $11.12 Canadian on the Toronto stock exchange Wednesday. On Thursday, the shares lost 12 cents to close at $11.00.
Sears will retain 12 million shares in Sears Canada valued at about $113 million, or about 12 percent of the company.
On Thursday, shares of Sears Holdings Corporation on the Nasdaq rose $1.88, or 7.5 percent, to close at $27.06.