Sears shares dive 27% after report says retailer is preparing for bankruptcy

Sears shares dive 27% after report says retailer is preparing for bankruptcy

If Sears wants to avoid bankruptcy, it'll practically have to pull a rabbit out of a hat.

One of Sears' major shareholders just dumped a chunk of his stock for pennies on his original investment.

He writes that Sears occupies a significant amount of space, but that about three-quarters of its stores are outside the U.S.'s Top 50 markets, so while many landlords rent space to the retailer, that exposure is relatively small.

A $134-million debt payment that Sears has to meet on Monday has added pressure on both Lampert and the special committee to find a resolution. Edward Lampert, the hedge-fund manager who is Sears's chairman, chief executive, largest shareholder and biggest creditor, could rescue the company, as he has done in the past by making the payment.

Investors are giving up hope on a deal.

Sears acquired discount chain Kmart in an $11 billion deal engineered by Lampert in 2004. For example, he recently offered to buy its Kenmore appliance brand for $400 million.

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Shares of Sears (SHLD.O), an iconic American retail brand which traded above $100 a decade ago but have fallen to less than $1 in the past year, were down at 41 cents in trading before the bell. CNN reported that while that sell-off represented only 8 percent of the investor's holdings, he could be cutting his losses since "shareholders are typically wiped out in bankruptcy".

Alan Carr, formerly of law firm Skadden, Arps, Slate, Meagher & Flom, has experience leading complex financial restructurings, Sears said in a statement. The boutique advisory firm, New-York based M-III Partners, has spent the past few weeks working on the filing, the Journal reported. That kind of loan is used by companies that file for bankruptcy to fund operations during the process.

Sears had no comment on the report.

The Wall Street Journal quoted sources saying Lampert wants to restructure and is anxious that a bankruptcy filing will lead to a liquidation, which has happened with so many retailers, the most recent being Toys R Us. But it has struggled to reinvent itself in the face of online competition from companies such as Amazon.com Inc (AMZN.O), as well as from other brick-and-mortar retailers, including Walmart Inc(WMT.N). The retailer closed its last Sears store in Chicago in July and has announced plans to close another 46 stores by November, including a Kmart in Steger and a Sears in Bloomington.

The 125-year-old company, which has not turned a profit since 2010, has approached several banks to prepare for a bankruptcy filing, according to CNBC.

Sears and Kmart had 89,000 employees as of February 3 of this year, according to a company filing.

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