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.
