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Linda,
Will give this merger discussion another angle. Since we both seem to be approaching this based on our individual past experience, will try to look at it that way.
We are where we are now as a result of an actual merger of kmart and sears. The result of that merger was that kmart and its subsidiaries and possibly affiliates as well as sears and its subsidiaries and possibly affiliates were brought together under the umbrella of sears holding corporation, shc.
After that merger, the stock of kmart and sears was effectively made worthless (as opposed to worth less) via actions by both kmart and sears which involved one or more of the following: delisting or cancelling their individual securities. Sears holding corporation then registered securities with the ticker shld and sears stockholders ending up owing 45% of the new company and kmart stockholders ending up owning 55% (this is simplified because both companies had to deal with options, warrants, notes etc.). However one looks at this, it truly was a merger and the stockholders of each of the merged companies got stock in the new company.
My only bankruptcy stock was general growth properties. It voluntarily entered bankruptcy when a number of its secured lenders refused to extend the maturities on those loans. While it may be a case of figures lie and liars figure, it was thought by most that general growth had assets in excess of liabilities (especially if you consider that the value of its real estate was on the books at the lesser of cost or market and those properties were universally thought to be worth much more than the values shown on financial statement).
Bill Ackman of Pershing square, Bruce Berkowitz of Fairholme Capital, and Bruce Flatt, ceo of Brookfield Asset Management all came together with a financial plan to get GGP out of bankruptcy. GGP actually filed a plan of reorganization and based on the financing that primarily Ackman was able to bring together with the other two fund managers, GGP emerged from bankruptcy as New GGP. Its old stock was cancelled and exchanged 1 for 1 with new GGP stock.
I might point out that GGP was the only stock in bankruptcy which got off the pink sheets as GGWPQ and resumed trading on the big board while still in bankruptcy. This case was not a merger nor an acquisition. It was just a successful plan of reorganization in which the company which filed for bankruptcy was able to emerge as a viable company with all of its creditors paid off and all of its stockholders made whole.
A case with which you are familiar is the one involving the wamu/wmih bankruptcy. Wmih was a lender and when it emerged from bk in 2012, while not a shell, it had very limited operations which mainly involved overseeing a legacy reinsurance business. It apparently had a lot of valuable tax assets (nols) when it emerged. Some six years later, Nationstar Mortgage (Mr. Cooper) and WMIH merged. From comments on the board, the stockholders survived in some fashion after this merger.
Then there is the case of Expedia acquiring Orbitz paying $12/share for each share of Orbitz. This is just a pure acquisition example. Orbitz and its stock went away as a result of its acquisition by Expedia.
Now we have our current deal. SHC filed for bankruptcy. It seems to clearly be a case of liabilities in excess of assets although there has been a lot of discussion, much like ggp, that sears real estate assets are worth much more than the book value. As we saw from the dockets, SHC had kind of a dual or triple path it was examining. One path was to try to find a way to emerge on its own, another plan involved selling substantially all of its assets and possibly then file a por with some type of possible reorganization which might involve retaining substantial tax assets, and the final plan would be a conversion from chapter 11 to chapter 7 and liquidating its remaining assets and subsequently folding its tent.
As it is playing out, SHC sold substantially all of its assets to Transform Holdco, which is wholly owned by ELS which is wholly owned by Eddie Lampert. According to the Asset Purchase Agreement (APA), Holdco’s intent seems to be to obtain as much of the tax attributes (nols and mostly foreign tax credits) attributable to those assets it purchased, subject to some type of reduction as a result of the cancellation of credit which was part of its purchase price offer. We are currently waiting to see how much, if any, of those nols are realized by Transform Holdco.
As I read the IRS rules regarding the ability of Holdco to retain SHC’s nols, there cannot be a “shift in ownership” and the equity structure needs to be maintained. Again, both SHC’s and Holdco’s tax and legal counsel are working together to effect these transaction.
As I previously posted, Holdco has taken great pains to make sure the acquisition of SHC assets in no way could be construed as any type of a merger or continuation of SHC’s business from a standpoint of any liability to Holdco.
That is why I am of the opinion if my interpretation of the IRS rules is correct, that if Holdco exchanges Holdco common stock for Shldq common stock it would not be considered as a merger but rather one of the transactions necessary to enable Holdco to realize SHC’s nols.
If SHC retains any nols as a result of ESL’s cancellation of debt, then there might be a possibility for SHC to file a por around some type of shell corporation and attempt to sell that shell distributing any proceeds as required by the bk court.
Since SHC is currently operating a large number of gobs after which some of those properties seem to be going to be relinquished to Holdco and the others sold to obtain proceeds to pay bk claims, I question what might be left around which SHC could reorganize in an attempt to preserve any nols it might retain. Again, as previously posted, it is my understanding the reorganized company would have to have some pretty direct correlation to those which gave rise to the nols it retains.
If shldq stock survives, it is my feeling it will have the most value being associated with Holdco (as a result of the nol play). If there is no nol play for Holdco then I don’t see shldq being exchanged for Holdco stock. Shldq would stay with SHC which would then scramble to find a way to monetize them. However, having sold the primary assets which most likely gave rise to the nols in the first place that seems to present a problem to SHC.
Again, my bet is the nols are substantially going to Holdco and there will be a stock swap of some sort in which current shldq stockholders realize value from the Holdco deal.
The article posted late this afternoon quoting lampert as saying something along the lines of this is the best deal for stakeholders I find encouraging. I had posted a number of weeks ago that all stockholders are stakeholders but not all stakeholder are stockholder.
linda,
i guess i mistook your comment about ..."eliminating the debts of certain senior creditors and the $3.5 b of uc's from ...holdco's balance sheet - after the closing" as somehow meaning they might have been on there.
we are on the same page about the effect of the 363(f) ruling. none of that debt would have ever had a chance of transferring to holdco i.e. holdco never would have had to assume any liability for those debts based on the ruling.
for some reason which i do not understand because i initially thought the extent of holdco store purchase was limited to the 425 stores, if you look at the language of the agreement, even though shc is conducting various gobs in a large number of stores, some of them which are evidently not part of the 425 store footprint will be handed over to holdco after the gobs are completed and the stores are "cleaned out".
one explaination for that confusion might be the language in the transcript of the auction hearing (i believe that's where i read it) which indicated that immediately upon closing that holdco would be selling around 100 dark properties with the thought it might net $100 million.
i also believe that others of those properties will be disposed of by shc and the proceeds, net of any secured liabilities against them, will be used by shc to pay various creditors, including the uc's.
and regarding your thought that this somehow could be classified as a merger if stock is exchanged, i have cut and pasted a number of comments from either judge drain's order or the apa which categorically states that in no way will any actions by holdco and shc be considered a merger.
M. No Successor or Other Derivative Liability. (from page 11 of drain’s order)
The sale and transfer of the Acquired Assets of the Debtors to the Buyer, including the assumption by the Debtors and assignment, transfer and/or sale to the Buyer of the Assigned Agreements, will not subject the Buyer or ESL to any liability (including any successor liability) under any laws, including any bulk-transfer laws, or any theory of successor or transferee liability, antitrust, environmental, product line, de facto merger or substantial continuity or similar theories, with respect to the operation of the Debtors’ business prior to the Closing
R. Satisfaction of Section 363(f) Standards. (from page 16 of drain’s order)
Except as expressly provided for in this Sale Order, the Debtors may sell the Acquired Assets that are owned by the Debtors free and clear of all …de facto merger claims…
22. (from pages 43 and 43 of drain’s order)
Except as expressly set forth herein or in the Asset Purchase Agreement, the Buyer Related Parties and their successors and assigns shall have no liability for any Claim against the Debtors or the Debtors’ estates or Excluded Liabilities, whether known or unknown as of the Closing Date, now existing or hereafter arising, whether fixed or contingent, whether derivatively, vicariously, as a transferee, successor, alter ego, or otherwise, of any kind, nature or character whatsoever, by reason of any theory of law or equity, including…any common law doctrine of de facto merger…
27. No Successor or Other Derivative Liability. (from page 52 of drain’s order)
By virtue of the Sale Transaction, the Buyer Related Parties and their affiliates, successors and assigns shall not be deemed or considered to: (i) be a legal successor, or otherwise be deemed a successor to any of the Debtors; (ii) have, de facto or otherwise, merged with or into any or all Debtors; (iii) be consolidated with the Debtors or their estates; or (iv) be an alter ego or a continuation or substantial continuation, or be holding itself out as a mere continuation, of any of the Debtors or their respective estates, businesses or operations, or any enterprise of the Debtors, in each case by any law or equity, and the Buyer Related Parties have not assumed nor are they in any way responsible for any liability or obligation of the Debtors or the Debtors’ estates, except with respect to the Assumed Liabilities. Except as expressly set forth in the Asset Purchase Agreement, the Buyer and its affiliates, successors and assigns shall have no successor, transferee or vicarious liability of any kind or character, including, without limitation, under any theory of foreign, federal, state or local antitrust, environmental, successor, tax, ERISA, assignee or transferee liability, labor, product liability, employment, de facto merger…
“Competing Transaction” (from the definitions section of the apa on page 30/1120)
shall mean any direct or indirect financing, refinancing, acquisition, sale, divestiture (including by merger, acquisition or other business combination), public offering, recapitalization, business combination or reorganization, whether in one transaction or a series of related transactions, of or involving or implicating all or any material part of the Designation Rights, the Properties, the Leases, the Acquired Assets, the Assumed Liabilities or any Business (other than any such transaction or series of related transactions with Buyer or any Affiliate thereof) or any standalone plan of reorganization or liquidation for any Seller that does not contemplate the consummation of the Transactions
Section 9.2 Tax-Related Undertakings and Characterization of the Transaction. (from page 106/1120 of the apa)
my very layperson’s interpretation of this section is that if holdco elects to treat the various transactions anticipated as a result of this purchase as a tax reorganization then seller (shc) must do certain things at the direction of holdco. Among those things seem to be to cause certain subsidiaries (I believe advantageous to holdco’s tax plan) to merge sometime after the approval of the bankruptcy plan but before the closing. In addition to possibly having some subsidiaries merge, holdco may also direct that other subsidiaries be liquidated (I believe so as not to create any competing claim for nols or other tax advantages, presumably if they were left with shc) which also would be done at holdco’s direction after the bankruptcy plan is approved but before closing.
(a) Unless Buyer makes the election under Section 2.12(b) to treat all the transactions described in Article II as Designated Sale Transactions (resulting in no transfer of Sellers’ Tax attributes to Buyer): (1) Buyer shall provide to Sellers detailed instructions as to steps to take (or not take) in order to secure and preserve the qualification of any of the transactions set forth in this Agreement as a Tax Reorganization (except if and to the extent Buyer determines otherwise, in accordance with Section 2.12(b), in respect of a given transaction or a particular Seller) and to achieve the Tax Result, including, without limitation, with respect to (i) repayment, cancellation or settlement of, or other actions with respect to, intercompany accounts after the approval of the Bankruptcy Plan and on or before the Closing Date, (ii) the merger of any of Sellers’ Subsidiaries with another Sellers’ Subsidiaries after the approval of the Bankruptcy Plan and on or before the Closing Date or conversion of any of Sellers’ Subsidiaries into limited liability companies with effect after the approval of the Bankruptcy Plan and on or before the Closing Date, (iii) the filing of any Tax elections to treat any such Subsidiaries as disregarded entities for U.S. federal income tax purposes with effect after the approval of the Bankruptcy Plan and on or before the Closing Date or otherwise taking such action to establish that such Subsidiaries have liquidated for tax purposes after the approval of the Bankruptcy Plan and on or before the Closing Date, (iv) implementation of the Distribution Requirement in a manner that is consistent with section 507 of the Bankruptcy Code, (v) satisfaction of the ownership requirements set forth in section 382(l)(5)(A)(ii) of the Code…
linda,
i don't think any of those debts would ever be on holdco's balance sheet since the (f) standards meant the assets acquired by holdco were free of liens and encumbrances.
the reason i think it's not a merger is becasue the assets have already been acquired by holdco. if, as i think it will occur, shldq stock is first cancelled and then holdco provides an exchange of (for sake of argument a 1 for 1) 1 share of holdco stock for each cancelled shldq stock, it's not a change of ownership i believe, but rather a "preservation" of the ownership structure vis-a-vis stockholders at sears.
if holdco exchanges the stock as described, 1 for 1, after that is all said and done, lampert et al will still be the holders of 70+% of the common stock issued and everybody else (as of some date of record) will be the owners of the other 30 +/- %/
if currently holdco only has preferred shares issued in some small quantity to satisfy the "securities consideration", then it seems to me there would have been no "shift in ownership" and no difference in the equity structure.
again, all of that is based on holdco receiving nols which it seems need to be preserved by not having a "shift in ownership" or equity structure.
admittedly, i may have this all wrong, but that is how i am looking at things at this point.
good, that's the link between second lien and senior second lien i couldn't find
linda,
thanks for those references, i just couldn't remember where i had seen that comment.
blue, when you say:
"See why I believe Eddie Lampert and Bruce Berkowitz should consider an exit strategy such as selling Sears Holdings to Jeff Bezos."
you do realize that's not possible, don't you?
neither eddie lampert, bruce berkowitz, or transform holdco will have anything to do with sears holdings after the deal which just approved by judge drain closes.
that was the whole point of the deal. acquire assets FROM sears holdings and move on, leaving sears holdings to deal with whatever they have left to handle.
also, why do you say sears stores "bleeding cash". thought everybody was saying the stores which esl/lampert/transform holdco purchased where the profitable stores? bleeding cash?
"WMIH merged with COOP after Bankruptcy
in order to utilize $ 6 B in NOLs.
I do not know how the merger was
structured but it did not affect the NOLs."
_________________________________________________________
didn't follow that but see that wmih emerged from bk in 2012 as a successor to wamu.
their merger with mr. cooper didn't take place until 2018.
wmih evidently emerged with nols as a result of its bk. wmih and wamu were mortgage lenders. mr. cooper was also in the mortgage business. their merger satisfied the requirement that in order to preserve the nols mr. cooper had to be operating in the same space as the space in which wmih/wamu operated in order to utilize the wmih/wamu nols.
quick google search seemed to indicate that wmih really wrote no new business since emerging and maybe was only servicing mortgages. maybe it was not much more than a shell of some sort with the nols sitting on their books as an attractive asset which mr. cooper noticed prompting one side or the other to make the merger proposal.
______________________________________________________________
"Why would Transform Holdco not wait until
the Creditors’ Debts are converted into new
SHC Shares after the Effective Date to
merge with SHC?"
______________________________________________________________
first of all, i am not sure whether or not shc will reorganize around some type of surviving shell which would be the means for shc to issue new shares. secondly, i'm not sure there is any intention for shc creditors to get shares of any "new shc". i'm thinking more along the lines of the money coming in from shc's gobs and other actions will be used first to satisfy senior obligations and then go the the unsecured creditors if anything left. again, not sure what successor businesses shc will have after the closing and they may only do a reorganization around one or more remaining business of the type which generated any of the nol's which may stay with shc entities.
the whole point of this 363 sale and satisfaction of 368 irs issues is for els to be able to receive and benefit from the tax advantages to be obtained from that purchase, if esl gets satisfactory approvals and opinions from their tax experts.
you will notice from the order and apa that esl/holdco has and is taking great pains to state that the transaction was in no way a merger, that esl/holdco in no way is to be a continuation of shc and about every other way that concept could be said and reduced to writing.
there is no way esl/holdco would then merge with shc after sch gets its house in order and does whatever it is going to do, be it reorganize around some type of shell or convert and liquidate.
_____________________________________________________________________
"Are you thinking in the above that Transform Holdco
can intervene in the POR - and bypass the issuance
of new SHC stock - with a Merger offer of new
Transform Holdco Commons - to be issued to
outstanding Creditors and Shareholders?"
_______________________________________________________________
i'm not thinking so much intervening as that some type of explanation of what might happen to shldq stock will be described in the por. if holdco just went out and announced on its own that it would exchange some holdco stock for shldq stock, could that then be interpreted as a "merger" or hostile takeover in any way and jeopardize any nols holdco might receive?
i don't know, but that's why the apa and its 1st amendment indicate both holdco and shc will be working together to make sure whatever happens with the nols is what each party intends to happen. just don't see any possibility at all of any type of merger between holdco and shc (in its new life if it has one_
there's a lot for which we will just have to take a wait and see attitude.
esl doesn't seem to want to leave any crumbs.
wish there were a search feature on these post to hunt a word or phrase which would prevent going back through thousands of posts.
what i'm looking to find or remember where it was said was the comment that esl, in exchange for cancelling its $1.3 billion debt via the credit bid, would receive holdco stock in exchange.
it might have been in the transcript of the hearing, just can't remember. but i did post it together with the reference at the time i came across it.
i seem to remember you making a comment regarding that issue at the time.
i think had he done that, then this would have been a share purchase not an asset purchase under a 363 sale.
i believe the creditors liabilities are with sch. satisfying all of the standards of a 363(f) sale, as described in drain's order to me means that the assets which transform holdco purchased are free and clear of those obligations. whatever agreement he made to help satisfy shc creditors as part of his purchase price i think is the end of any responsibility holdco has to those creditors.
it is my feeling that in order to complete the nol requirements to keep the tax benefits under 368 of the code, it would be holdco's proposal, as described in shc's por, to exchange shldq for holdco shares.
holdco is under no requirement to pay any shc creditors at this point.
look at page 16, paragraph R. of the judges order (docket 2507) and tell me what you think.
i think if esl/lampert had tried to purchase all of the shldq shares after bk that might have voided any opportunity for holdco to get the nol's. i believe a court approved sale under code 363 can either be an asset sale or a stock sale, but not both.
don't know about the name change issue although i thought i read someplace there might be a need for shc to continue using some names it will be giving up during the transition. that might be spelled out in the cooperation agreement (not called that but that is the essence of what it is) which should be filed in the near term.
i think shldq will continue to be shldq until the por comes out and we finally get some resolution on how commons will be handled. if they are exchanged for holdco then shldq will be cancelled and will probably just be dealing with an ownership of record date to effect the exchange as opposed to an actual surrender of stock. not like the old days when one actually held paper certificates.
linda,
i went to the sec filings for march 23, 2018 when shc filed an 8k dealing with amending the various loan/credit facilities.
have not been able to pin the senior second lien obligations to esl or one of its subs. the jpp appears to have been a party to the second lien and the effect of the "senior" was to give it precedence over other obligations. what i can't find is if the senior second lien obligation pertained to jpp as well. if it did, this it could be part of the credit bid.
when i responded to you i included info from that exhibit g which laid out the allowed amounts owed to esl per the apa. there was a second lien term note listed on exhibit g but not a senior second lien term note.
one thing "missing" from your comment was shc was to distribute its preferred units ratably to senior second lien obligations.
ratably seems to suggest some type of apportionment which further suggest possibly more than one debtor involved.
however, if it were to be only esl or one of its entities, then i would agree that they would "get back" at least some of the preferreds comprising the "securities consideration".
again, that exhibit g to which i am referring is on page 261/1120 of docket 2507
let me know if you think i am understanding what it is you are asking even though i may not have been able to fully answer your question.
linda,
all of the debtor/subsidiaries of shc which entered into this bankruptcy had their on tax identification numbers as you will notice from footnote 1 in the caption (in re: sears holdings corporation, et al, debtors) to the filings:
it's my feeling all of these subsidiaries, even though they had their own tax id #'s that their results were consolidated when shc filed its returns. i also believe these subsidiaries were probably wholly owned by shc.
as to the non-debtor affiliates, shc probably had only a minority stake in them which is why they were not included as debtors in the bk filing.
the reason i think each of the subsidiary debtors were wholly owned is that there would have been much more wrangling about going bk by them if they were being dragged into bk as minority owners by shc.
it's also my feeling that if shc were to convert to a chapt 7 that shc would have to liquidate its minority interest as opposed to the companies which were in the the position of holding a majority interest having to also liquidate.
i would imagine good business practice when sears entered into those affiliations would have been some type of language about one buying out the other in the event of a bk or some type of indemnification.
also, if you look at the apa signature pages, lampert signed for transform holdco. since lampert stepped down as ceo but retained his chairmanship in sch, it would not have been appropriate for him to sign on behalf of sch. the interesting thing, which i think supports sears complete ownership in those other debtor/seller entities is that rieker signed on behalf of each of them as some type of senior officer and/or a director of each of those companies. you can see this from all of the signature pages which follow at the end of the apa.
the only exception was for sears reinsurance, a bermuda company, which was signed by robert phelan, its president who agreed on behalf of sears re: to be bound by the terms of the apa.
also, i don't believe it was an issue of profitability which determined why some didn't become debtors, i feel is was an issue related to % of ownership by shc. i.e. shc was a minority owner.
again, hope those companies don't come back to bite me but like you i have not researched them enough for answers and don't really intend to.
last i checked the name "fast eddies downsized emporium" was still available
linda,
look at page 16/83 of judge drain's order:
section r: satisfaction of section 363(f) standards and then look at the attached link to an article about F reorganizations.
the apa provide the various Transactions to be treated as 1 or more reorganizations under section 368 of the Code.
what are your thoughts?
https://www.taxlawforchb.com/2015/10/sometimes-an-f-is-a-good-result/
my posts seem to be posting 2 to 3 times each so probably won't be posting much more today.
exhibit g of the apa breaks down esl's allowed claims as follows"
Loan Facility Allowed Amt. owed ESL as of 10/15
IP/ground lease term loan $187,327,014
FILO facility 70,560,076
Real Estate Loan 2020 726,483,196
Second lien term loan 318,610,234
second lien LC facility 507,072,878
Second lien PIK notes 21,346,945
CITI L/C facility 108,410,464
i believe the above amounts owed esl are the balance due after applying his credit bid. want to look at that again. however, it is interesting that on january 3, 2019 esl purchased $31,887,343 of additional debt under the IP/ground lease term loan which is reflected in the above total.
again, not sure if the exhibit g numbers are what is owed esl net of the credit bid or no. those exhibit g total are around $1.9 billion versus a credit bid of $1.3 billion.
would love to see some reference to him purchasing actual shares after bk. that would cement the deal for shareholders.
i believe the apa references that esl will supply debtors with some type of direction as to how its credit bid is to be applied. have to imagine it will be in such a way as to minimize taxes and maximize tax benefits. don't believe that document is out yet so not sure i can answer your question.
the problem is that sears actually has to make money.
filed an action against sears protection company, one of the debtors in this bk. it was for a pre-petition issue but didn't file the small claims action until after they filed for bk.
issue was they dragged their feet about replacing an appliance under the terms of the agreement. just got a check for full retail value of the appliance plus court costs and shc not only paid that but paid between $3k and $5k in legal fees associated with travel to court twice, all of their back and forth in the office, filings they made etc.
a roughly $400 items ended up costing shc a few thousand dollars. that's the kind of crap which needs to be resolved if they are going to succeed.
i hope they do, but seriously, they need to get with the program and fast!
maybe that's why we have yet to see the "real" name for transform holdco.
shc need to dump all of the trademark names transferred to holdco and transform holdco needs to come up with one of their own to use without sowing confusion.
by virtue of the fact it is addressed in the apa, probably safe to assume that holdco is pretty far down the line regarding registering their new name. they just need shc to move first.
linda,
i would think that shc (the parent holding company) has 100$ interest in ALL of the debtors (the debtors being all of the entities listed on each of the filings). those wholly owned subsidiaries were rolled up in shc's consolidated financial statements.
on the other hand, there were some sears entities which were NOT debtors in this bankruptcy. language in the apa and other places mention the bk does not include those companies.
if there is an shc reorg around what's left, i would think it would be around those companies which were not parties to the bk.
my problem is i don't know what those entities are because i have not looked into them. i've tried a few "looks" to find equity in something of sears which is not shc but haven't found anything. do you know of any?
it could be no more than those company's registered as some type of business entity and then authorized just a few shares, literally like 100, which aren't public and aren't traded. if sears has some type of minority interest in those companies which prevented them from becoming debtors in this bk due to the way they were structured, then maybe shc or sears roebuck or whomever received some of those shares.
without seeing documents or having more information from some place which i have not been able to locate, there's no real way to know what's what.
bottom line right now is that it doesn't interest me enough to dig in and i hope i'm not hit up beside my head if they become important.
from my point of view, the value, if any, will be in how holdco impacts shldq shareholders not in how shc in some type of reorganization impacts their own (shldq) shareholders.
my gut reaction is the relatvie value to shldq shareholders being associated with holdco is $1.00 and the relative value to shldq shareholders being associated with an shc reorganization and having nothing to do with holdco is $0.10.
as i said, that's just a gut feel, no numbers run. the proportion of value transferred to holdco is so much more than anything i can imagine being left with shc.
first off, let's call it holdco (transform holdco)
if he were to take in all of the shldq shares, even in a 1 for 1 exchange where each share of shldq gets a share of holdco, els/lampert would still control holdco.
however, that was not my point in the initial post i made this morning, the debbie downer post.
my point was, esl/lampert already owns and controls 100% of holdco. any consideration given to shldq shares for holdco shares would reduce his ownership.
in either instance, esl/lampert would still have a controlling interest.
my point was that IF the nol's didn't transfer to holdco what incentive does holdco/lampert have to exchange holdco shares for shldq?
conversely, if the nol's stay with shc, in order for them to be utilized i believe shc would have to operate substantially the same type of business which generated the nols in the first place for a minimum of two years. if shc has sold all of the assets to holdco which probably were the ones which generated the lion's share of the nols, then what real benefit are they to shc and its remaining subsidiary companies or their shareholders? i can't even begin to think what those remaining companies might be, around which shc would reorganize.
i believe where this will go, but still looking at the irs rules, is that for holdco to obtain the nols (at least the majority of them subject to adjustments for cancellation of debt) there needs to be adherence to rules regarding shift of ownership and structure of the company's ownership (i take that to mean equity) between the company from which the assets which generated the nols were acquired (shc) and the company which acquired them (holdco).
if that proves to be the case, then i do believe that shldq shares will be cancelled and subsequently exchanged for holdco shares.
another reason to grant shares of holdco for shares of shldq, even if the nols were not an issue, might be to not piss off institutional holders (such as bruce berkowitz who i believe is sympatico with lampert).
will lampert/esl have the money to do what he wants to do with these properties without possibly doing some sort of ipo or share issuance? i don't think so. berkowitz, who hold around 5% of shldq stock +/- might be a good person to have in your corner.
there could be just a psychological reason for doing it, not a legal one. i don't know but my thinking is if shldq shares are to have any value (other than the play between now and the plan release) it will be with holdco as a result of granting holdco stock for that of shldq.
not meaning to put words in her mouth, but i believe linda believes that nols staying with shc could generate benefit there. i just don't see any real business left for shc to operate, generate a profit, and then use the nols to reduce their taxes. holdco is purchasing the foreign entities which should mean it would be the entity to obtain the benefit from the foreign tax credits.
if shc were only going to create some corporate shell in a reorganization and then distribute the nols to shareholders, wtf am i going to do with an nol generated from running a department store in a retail setting, or running an auto center, or whatever. i just don't see any value coming out of a distribution from shc which is supposedly a benefit remaining with shc and the other sears related debtors.
an important consideration is that drain's order stated this sale met the standards of a 363(f) sale:
___________________________________________________________
Under Section 363(f) of the Bankruptcy Code, a debtor or trustee can sell estate assets “free and clear of any interest” in such assets. This short, simple string of six words represents one of the most powerful tools in the bankruptcy professional’s arsenal. In many situations, section 363(f) allows the bankruptcy estate to unlock the value of certain assets that might be wholly unmarketable, or otherwise severely diminished in value on account of unknown or unasserted claims against such assets or due to uncertainty regarding the amounts of, or relative priority among, secured claims against such assets. In some cases, access to section 363(f) is the primary driving force behind a bankruptcy filing.
__________________________________________________________________
unless specifically set out in the order or apa, the assets holdco purchased are free and clear. no secured or unsecured claims against them, as i read the order and the provisions of 363(f)
other than lampert and probably esl still being on the hook for litigation regarding the issues others have raised about his dealing when with sears, that will not be a headache with which holdco has to deal.
pbgc agreement with shc:
docket 2529 sets forth the pension board settlement with shc. no apparent liability for holdco, lampert or esl
linda,
i completely missed/forgot it was 3000 shares. i just remembered it was valued at $300k. thanks
re: securities of other debtors who were wholly owned subsidiaries of shc, i couldn't find anything about separate securities in those debtors/sellers. guess this will all come out in one or more filings.
Berkowitz, who once sat on the board of the ailing retailer, reported owning only 4,578,440 shares of the company, a position diminished from 14,061,947 shares he owned at last count on Aug. 28. The sale represents the largest decrease he has made in the position in at least the past nine years on record. At peak, his holding topped 28.9 million shares in the first quarter of 2017.
all securities are NOT under the assets list. page 39 of the apa in sections 2.2 describes the assets which are excluded from esl's bid. subsection (l) of section 2.2 specifically EXCLUDES the securities:
__________________________________________________________________
except as otherwise expressly included as Acquired Assets, all shares of capital stock or other equity interests of any Seller or Subsidiary of the Seller or securities convertible into or exchangeable or exercisable for shares of capital stock or other equity interests of any Seller,
Subsidiary of the Seller or any other Person;
linda,
went on the state of delaware site today to research transform holdco, llc.
as you previously posted, it was incorporated on 9/28/2018, a little more than 2 weeks before shc filed for bk.
probably the first we heard about transform holdco was from reading esl's first bid or from an initial apa.
i ran a more detailed report than what which is only a "look/see" mode and there has only been one filing for the company. the initial entity filing. fwiw, the filing number for holdco is 7077051.
interestingly, there are NO authorized shares listed.
that leads me to believe that there is another name in the wings, probably already or soon to be filed based on drain's friday approval.
i did a generic search for "sears" and many entities came up. based on the seven digit holdco filing number assigned last september, i was looking for a seven digit number beginning with either a 7 or an 8. nothing new. can't believe whatever "real" name takes the place of holdco won't have sears in it someplace so maybe not yet applied for or applied for but requested not to be filed until they say so.
whatever, for securities to be given under the securities consideration, there has to be a company formed and shares authorized. have to believe when it is done, it will consist (minimally) of both class a and class b shares. there could also be a provision made for warrants.
guessing with the sign off by drain, these things will be finalized sooner rather than later.
the apa contained the usual "time is of the essence" language and as soon as the sale is closed, that marks the end of any type of appeal which might be able to be filed.
there's a lot to protect so imagine lawyers on both sides are busting it to get things done.
still find it interesting they placed a value on shares which don't appear to be listed or have yet to establish a market value.
i still can't get by the language in the apa which provides the sellers are to distribute shares to shareholders. i believe the language excluded shc from the "sellers" but it seems like the debtors are all subsidiaries of shc as as such one might think that holders of shldq are equity holders in each of these other sellers.
other than the warrants expiring in dec 2019, not aware of any other "sears" shares trading outside of shldq.
still working on the nol thing
DRAIN SIGNS THE ORDER!
maxed out on posts yesterday. can't believe EVERYONE missed this. while an sec filing might take a few days, the docket is closer to real time.
DOCKET 2507 was filed on friday, as promised, and entered at 15:14:32
in other words, around 3:45 pm just before the market close.
the filing is more than 1200 pages and the first 80+ pages are the order and following that are 1120 pages of everything related to the order.
linda has done some analysis which was posted late last night and there have been some other cautionary posts by others. i believe linda's comment that nol's will be the path to saving commons is spot on and will comment on that later.
my initial comments are from the "debbie downer" point of view.
to all those who ask "why would lampert wipe out his own shares?", here's my reason why.
the asset purchase agreement (the "apa") was entered into by and among transform holdco, llc, sears holding corporation, and its subsidiaries party hereto.
as has been pointed out many times on this board, the sale of various sears family of assets to transform holdco was a 363 SALE, IT WAS NOT A MERGER.
so, what does that mean?
it means transform holdco purchased EVERYTHING sears sold it as set forth in the apa.
so, who now owns 100% if those assets?
TRANSFORM HOLDCO!
according to schedule 7.1 (page 1120/1120) the entity interests in buyer are as follows:
1. transform holdco, llc is a delaware limited liability company
2. the sole owner of transform holdco, llc is esl investments, inc
3. the sole owner of esl investments, inc is edward s. lampert
listen closely, as of this moment, eddie owns everything which sears sold to transform holdco.
eddie owns "almost" 100% of transform holdco. why do i say "almost 100%"?
that's because transform holdco is issuing $300,000 of transform holdco class b stock (the securities consideration) to various sears' entities.
my take on class b stock is they typically have fewer voting rights than class A shares. in other words, eddie has and will continue to maintain control over transform holdco.
DRUM ROLL PLEASE
even if ALL of shldq's common stock is wiped out, including ALL of the common stock held by eddie, esl, and various other insiders, (including all of the shares still held by bruce berkowitz who is no longer an insider) eddie will still control "almost" 100% of transform holdco!!!
so, does that mean commons are de facto screwed? not sure.
however, the path to salvation for commons, if any, will be through the nol's as linda pointed out in her most recent posts.
IF, IF, IF the sale to holdco can not be successfully structured as a "tax reorganization" then, imo, eddie will have absolutely no reason to make any accommodation regarding the shldq shares via any type of exchange. why would he? if he doesn't get the nol's, why dilute his ownership by exchanging holdco shares for shldq shares, just to be a nice guy?
i listened to the berkowitz video posted earlier and have the following thoughts.
berkowitz comment was to: (i) buy when assets were distressed. that certainly fits the bill with shl. he also said (ii) from failed retailing comes great real estate empires. certainly no question that sears is a failing/failed retailer. he also said to (iii) follow the cash. in this situation, following the cash shows who purchased the sears' assets. it was eddie. however, part of that "cash" could very well be the nol's (and possibly the mostly foreign tax credits) some and possibly a great deal of which would flow to transform holdco. berkowitz most sanguine comment about his purchase of sears' stock was that he was guilty of "excessive premature accumulation".
without the nol's i believe any participation in transform holdco by the shldq shareholders is probably not going to happen. if the nols substantilly stay with the sears' entities then linda has described a way that might ultimately benefit shldq shareholders which has ABSOLUTELY NOTHING TO DO WITH TRANSFORM HOLDCO.
i don't want to max out on posts today so will not be chatting back and forth until i'm done with what i'm going to be doing.
that involves looking at the nol's and what might have to happen for shldq to participate in the holdco transaction.
blue,
the ceo who owns the hedge fund bought those shares in sears BEFORE shc declared bk
5 bil goes into one entity and then 5 bil goes out into another one.
that's what just happened. esl/holdco just paid 5.2 bil and shc relinquished/sold 5.2 bil of assets
paz,
holdco is transform holdco, the entity created by esl.
shc is not holdco. if esl's bid had not prevailed and shc tried to go forward on its own, it might have been know as "newco", NOT holdco.
linda,
why wouldn't the following be viewed as a "wash"?
_____________________________________________________
You are omitting that the value of the SHLDQ
Shareholders’ Equity Interest has now dropped
by $ 5 + B after yesterday’s Sale to Holdco.
______________________________________________________
in return for selling holdco certain assets, which in an "arms-length" transaction was valued at $5.2 billion, didn't shc receive "payment" from holdco which was valued at that same amount?
tsp,
not sure what your are saying:
_________________________________________________________
" It has been confirmed, short. 30 million float, nice try"
__________________________________________________________
109 million shares outstanding
insiders own/control around 73% which leaves the 30 million share float.
therefore, insiders who own around 80 million shares do not also own the 30 million share float.
The float is the number of shares actually available for trading. Float is calculated by subtracting closely held shares -- owned by insiders, employees, the company's Employee Stock Ownership Plan or other major long-term shareholders -- from the total shares outstanding.
therefore, ceo and insiders DON"T own 70%of the float
linda,
seems there is a conflict between the following two provisions which i can't reconcile:
_________________________________________________
All of the Class B Preferred Units of Newco
received by SHC be will distributed to Holders of
Senior Second Lien Obligations:
_________________________________________________
3. As soon as practicable after the Closing,
each Seller other than SHC shall distribute
the Securities Consideration received by it
(whether directly in respect of a Transfer
by it or pursuant to the Distribution
Requirement from a direct or indirect
subsidiary) to its equityholder(s) pursuant
to the Distribution Requirement
_________________________________________________
point 3 above doesn't say something along the order of "to the extent there are any securities left after distribution to holders of senior second lien obligations" they shall be distributed to equityholder(s) so how can both of those statements hold?
lien holders are not equity holders. either poorly drafted or something which i do not quite understand is being said in those two sections.
thoughts appreciated.
when you say:
"After Kmart emerged from bankruptcy the commons were cancelled by Eddy"
that's complete bs. try looking up the por when kmart and sears merged to see how those shares were handled.
lampert had nothing to do with kmart's bk in 2002. charles conaway was ceo and mark schwartz was the president.
try doing a little dd
when you say:
"After Kmart emerged from bankruptcy the commons were cancelled by Eddy"
that's complete bs. try looking up the por when kmart and sears merged to see how those shares were handled.
lampert had nothing to do with kmart's bk in 2002. charles conaway was ceo and mark schwartz was the president.
try doing a little dd
st,
didn't respond to linda as a rebuttal. she appears to be one of the few who is actually taking the time to try to deep dive into the issues here. i.e., someone who posts something more substantial than wowza!, to the moon, or such.
there are conflicting issues i really don't understand which is why i asked her input.
i sold 5k of the 30k shares i had i ggp in july '09 after purchasing my shares in march '09. that recouped my total outlay for all of my ggp shares. later regretted that move and i felt much more sure about ggp commons surviving than i do here.
since lampert is in an enviable position of winning even if the commons are wiped out, that leaves me conflicted about how this will play out.
agree that shldq will trade for a few months before a por is finalized or before we find out holdco's intentions.
i still hold shares of hhc which was spun off from ggp shortly after the dust settled in that transaction. my basis in hhc is a little under a nickle per share. it closed yesterday at about 110 per share.
don't see a 2,200 x return with shldq but was thinking this might be a portfolio changer on the upside. currently sitting up over 3x on this position. would love to see a 20x - 30x but just don't know.
as i commented on a post yesterday, i think, this is still a paradise for traders. those anticipating a longer hold maybe not so much.
i just don't know. esl/lampert/holdco seem to have many more options for a grandslam than we who hold commons. but isn't that always the case?
linda,
you are probably one of the few who might read this link although you seem to have gone down this road for your research:
http://www.willamette.com/insights_journal/11/spring_2011_10.pdf
this article and what is going on is confusing for the following reasons:
yes, esl's purchase was a 363 sale which involved the purchase of (some) shc assets as opposed to shc stock.
the linked article seemed to suggest an either/or situation. purchase assets and take whatever benefit as a buyer you can derive from that purchase and leave seller with its stock and nol's, or purchase the stock of the selling corporation and take whatever nol's apply.
BUT, if you look at the language in the apa and ammendment, it appears buyer (esl/transform holdco) is attempting to have its cake and eat it too. esl/transform holdco indicates that while buying the assets under a 363 agreement, it is also attempting to structure this as a tax reorganization.
in point 6 of your comment in which you summarized your thoughts as to what you thought was correct, you said:
"the holdco securities that the debtors received as part of the sale price will either be liquidated or distributed to creditors first and lastly shareholders"
now look at page 148/155 of docket 2456 filed yesterday which addresses the securities the debtors are to receive. it says:
"as soon as practicable after closing, each seller, other than shc, shall distribute securities consideration, pursuant to distribution requirements to its EQUITY HOLDER(S) pursuant to the distribution requirement.
lampert/esl and subs of lampert/esl beneficially own either 48.5% or 49.5% (can't remember which one it is and don't want to go back to the filing to verify, but in either case, it is less than 50% of the stock), however, as discussed in the linked article, lampert/esl and the subs also are secured creditors of the debtors.
i also read somewhere that all of the "less than 5% owners in a bankruptcy" are grouped together as one group for bk consideration. not sure how that impacts "shift in ownership" if that were true.
if, as a creditor, can esl/lampert just control holdco based on its proposed exchange of the $1.3 billion debt for holdco stock, let all commons be wiped out yet still remain in control of holdco because of the stock for debt cancellation consideration?
head is swimming, still not sure i know how this plays out.
13:56 ET - One problem for mall owners trying to work through the Sears bankruptcy is when they will be able to take possession of the real estate the retailer still controls. Macerich owns six empty, former Sears stores in joint ventures but can't touch them yet, since the bankruptcy court hasn't rejected the leases. "We have plans for all of these locations with a wide range of opportunities, including demolishing the box and repurposing the square footage with more productive uses," CEO Thomas O'Hern tells analysts on a 4Q earnings call. (micah.maidenberg@wsj.com; @MicahMaidenberg)
(END) Dow Jones Newswires
February 07, 2019 13:56 ET (18:56 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
probably no deal approved today:
remember this morning that a first amendment to the asset purchase agreement was posted on the docket.
it was self-described as a "substantially final draft"
judge drain is not going to sign off on a substantially final draft.
whatever has not been finalized will have to be finalized and reduced to writing and signed by all parties before drain will sign.
i don't rule out drain advising the parties he would sign IF IF IF a finalized first amendment is presented to the court along with the final apa as well as the draft order.
all of that could happen between now and friday but it's fantasy to think drain will sign off on a documents with a lot of unfilled blanks in it.
nice movement today, will see what news leaks out (although leak is probably not the correct characterization since i don't believe this was a closed hearing) and if reports out of the courtroom are positive would expect continued uptrend as we await final approval.
as to the question why would lampert want to wipe out his common shares? remember, he is exchanging his $1.3 billion debt cancellation to shc for equity in holdco. cancelling everybody's commons wouldn't be the end of the world for him. he wins either way.
my bet (backed by my position in this stock) is that commons will survive.
from page 148/155 of docket 2456 posted this morning as summarized by one of the board members first thing this morning, it provides the following:
"as soon as practicable after closing, each seller, other than shc, shall distribute securities consideration, pursuant to the distribution requirements to its equity holder(s).
that sounds like common stockholders to me.
but even if it is, is it 1 for 1? 1 for 10? don't know.
the document said the class b stock would be valued at $300,000.
what does that mean?
most stock prospectus filings i have seen say that a stock has a par value of $0.01 per share.
is it a stretch to apply that idea to this situation? if the stock is valued at $300,000 is that par value? certainly can't be market value since no market has been established for those shares.
30 million shares at par of $0.01 would be worth $300,000
is this coming from too much coffee or too little?
don't know but that is what i have been thinking about since seeing that document this morning.
is that all? or, would holdco then distribute shares to former shldq holders as some have suggested in order to keep the ownership structure intact to preserve the nol's?
still think there is a lot to wonder about until we see something finalized.
also, the allocation between assets holdco is set to acquire only is required to be submitted within 90 days of closing.
still a lot of loose ends to tie up.