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News that Sears Holdings Corp. is exploring the sale of assets including Kenmore drove shares to a four-month high -- and has at least one analyst bracing for a possible bankruptcy.

The retailer said Monday it had formally started a process to re-shop the Kenmore appliance brand and parts of its home services business -- units it hired Citigroup Inc. and LionTree Advisors to explore selling two years ago. Sears shares spiked as much as 19 percent in intraday trading and closed up 6.7 percent.

Susquehanna Financial Group analyst Bill Dreher said the company reinitiating a possible sale process suggests its cash constraints are becoming so severe that a bankruptcy process could be closer than expected.

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“The assets are ridiculously priced,” which is why they haven’t elicited much interest over the years, Dreher said in an interview. Monday’s announcement points to “heightened liquidity concerns and a cash crunch.” Susquehanna is a market maker for Sears stock.

Investors shouldn’t have been caught off guard by the news Sears was exploring asset sales. Chief Executive Officer Edward Lampert’s hedge fund, ESL Investments Inc., said in April it would be open to buying the assets and urged the department store to put the businesses on the block.

“I don’t know why there is any surprise,” said Noel Hebert, a Bloomberg Intelligence analyst. “Not only have they been shopping the assets for years, but could there have been any doubt this would happen after ESL put forth the request and what amounts to an out-of-court stalking horse bid for some of them?”

Sears declined to comment.

Cash burn

Offloading the assets would help replace cash consumed by the retailer’s struggling operations. The once-dominant chain has spent more than a decade trying to restore its former glory. For years, Lampert has used his own money to keep Sears afloat amid declines in store traffic and sales. The company has closed hundreds of stores and shaved more than $1 billion from annual expenses.

“Perhaps the shares are rallying on the prospect that this signals a beginning of the end and, in turn, limits the amount of enterprise value that is getting bled out via operating losses,” Hebert said.

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Sears posted a rare quarterly profit in March after a tax benefit, yet it’s spending prodigious amounts of cash. The retailer’s operations burned through about $1.8 billion in the 12 months ended Feb. 3, according to data compiled by Bloomberg.

Spinoffs, sales

To shore up operations, Lampert’s put a succession of assets up for sale, often spinning them off or withdrawing them when a deal didn’t materialize. The sale of its Craftsman tool brand last year to Stanley Black & Decker Inc. was a rare example of a consummated sale. In contrast, Sears has spun off its Lands’ End brand, smaller-format Hometown and Outlet Stores unit and now-defunct Canadian business.

Most notably, in 2015 the retailer said it was separating about 250 properties to form Seritage Growth Properties, a real estate investment trust. It was the promise of the company’s real estate value that pushed shares above $100 in the years following Lampert’s 2005 combination of Sears, Roebuck & Co. and Kmart Holding Corp. The shares erased year-to-date losses on Monday.

As a backstop, Lampert’s fund emerged last month as an interested buyer for the assets, which also includes Sears Home Improvement Products. The firm didn’t indicate what sort of price the Kenmore brand could fetch.

ESL offer

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“Our principal interest is seeing that Kenmore, SHIP and PartsDirect are divested in the near term in a transaction that delivers the greatest value for Sears, regardless of whether ESL or a third party is the ultimate buyer,” the fund said in a statement to Bloomberg. “We are very enthusiastic about our ownership interest in Sears and its future, and will remain so whether or not a transaction is consummated.”

Sears has formed a special committee, which consists only of independent directors, to evaluate ESL’s proposal, solicit third-party interest in the assets and explore “any other alternatives with respect to the sale assets that may maximize value for the company,” the Hoffman Estates, Illinois-based retailer said in a statement. It’s retained Centerview Partners LLC to serve as its investment banker and Weil, Gotshal & Manges LLP as its legal counsel.

If Sears is able to find interested buyers and the sale process is followed by a comprehensive reorganization of debt, it could be positive for creditors, Hebert said. Right now “there is still just enough value in the estate to cover creditors, but cash burn is their enemy.”

A quick deal may be key, Hebert said. “When you’ve got assets tied to a business in perpetual decay, selling now is almost certainly better than selling later.”

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