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Sears bankruptcy boss defends proposed sale to controversial ex-CEO Eddie Lampert

USA TODAY logo USA TODAY 2/7/2019 Charisse Jones and Zlati Meyer and Nathan Bomey
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WHITE PLAINS, N.Y—The chief restructuring officer in charge of the Sears bankruptcy said Wednesday that the company's proposed sale to its controversial chairman and ex-CEO would be a better deal for creditors, workers and vendors than liquidation.

Mohsin Meghji, who was appointed as the Sears restructuring chief when Chairman Eddie Lampert resigned as CEO in October, defended the retailer's plan to sell itself in shrunken form to Lampert's ESL Investments.

Meghji testified in bankruptcy court on the second day of a hearing to decide the retailer's fate that he had analyzed the difference between a deal to sell Sears to ESL and an alternative move to liquidate the company.

a person standing in a parking lot: Customers shop at Chicago's last remaining Sears store May 3, 2018 in Chicago. The store, which opened in 1938, is scheduled to close in July. Sears opened its first retail store in Chicago in 1925.

"Under which scenario did you conclude the creditors did better?" Sears bankruptcy attorney David Lender asked Meghji.

"ESL," Meghji testified.

A committee of unsecured creditors that is seeking the liquidation of Sears disagreed with Meghji's conclusion, questioning ESL's intentions and the structuring of the deal, saying it appeared to primarily benefit Lampert. 

a group of people walking in front of a building: Lawyers, witnesses and others leave the U.S. District Court for the Southern District of New York after the Sears bankruptcy hearing finished for the day, Feb. 4, 2019.© Peter Carr, USA TODAY Network Lawyers, witnesses and others leave the U.S. District Court for the Southern District of New York after the Sears bankruptcy hearing finished for the day, Feb. 4, 2019.

Judge Robert Drain, who is presiding over the hearing, will rule after its conclusion on whether Sears can be sold. If he agrees, the deal could be finalized Friday. If he rejects the deal, Sears is likely to liquidate.

The creditors have accused Lampert and ESL of orchestrating a "scheme" over years to "steal" Sears assets. Lampert and ESL have defended their role, saying they devoted billions in loans to Sears and helped preserve jobs.

Following Meghji's testimony, a back-and-forth ensued between Joseph Sorkin, representing the creditors, and Meghji about a dispute between Sears and ESL over one key element of their term.

Sears revealed Monday that it believed the sale terms required ESL to assume up to $166 million of accounts payable for items received after the bankruptcy filing. 

"We don't know if they've agreed," Sorkin said of ESL.

ESL said Monday in a statement that it is committed to getting the deal done but did not specifically address the accounts payable issue.

ESL agreed last month in a last-minute bankruptcy deal to a deal its advisers valued at more than $5.2 billion to acquire Sears and keep about 425 stores open and 45,000 employees working.

In further questioning, Sorkin appeared to suggest that Sears leadership was doing the bidding of Lampert by recommending in a letter to the business' restructuring committee that it approve the sale to ESL without evaluating whether its plan could work.

But Sears Chief Financial Officer Robert Riecker pushed back, saying that while he and others had a conversation with Lampert regarding their thoughts about the deal, "he did not request us to write a letter" and "did not require us" to do so.

Judge Drain then asked Riecker whether he felt a smaller number of stores have the potential to thrive in the continuing business if he agrees to allow the sale.

"I believe that it is a positive for the company because the past few years the company has carried money-losing stores," Riecker said.

While ESL has said that its bid will keep 425 stores open, its president testified that that number would likely shrink in the near future.

"I've got confidence I think we'll be able to generate more than $200 million in real-estate proceeds in the first year, " said Kunal Kamlani, president of ESL.

But 156 of the 425 stores that would be part of the new Sears are poorer performers.

And Kamlani said, when questioned, that they’d be candidates to be sold to make that projected revenue.

“I can’t tell you how many…we’ll sell next month or the month after that, if any,” he said, adding that it’s “unlikely it’ll be 425 in (20)19, (20)20 or (20)21.”

However, of the 20 to 25 properties that it could sell in roughly the next five months, just three to four of them are stores, he said. 

But he said the number of jobs could actually increase if the new Sears finds a winning formula.

“The new company, if we’re successful, we should be employing more than 45,000 people, by a large margin," he said. "If we’re not successful, then we won’t.”

This article originally appeared on USA TODAY: Sears bankruptcy boss defends proposed sale to controversial ex-CEO Eddie Lampert

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