Deborah Baic/The Globe and Mail
A four-year battle between two powerful U.S. hedge fund managers over department store retailer Sears Canada is likely close to an end.
As a result, Sears Canada will probably become a private company within a few months following an agreement by Edward Lampert, who controls parent Sears Holdings Corp., to buy 17.3 per cent of Sears Canada's shares from his nemesis and minority shareholder William Ackman for almost $560-million.
In 2006, Mr. Lampert lost his bid to take Sears private when Mr. Ackman succeeded in blocking Sears Holdings from buying out the Canadian division's minority shares for $18 each.
Yesterday, the parent said it had a pact to pay $30 a share to snap up Mr. Ackman's Pershing Square Capital Management LP shares - bringing the parent's ownership to 90.4 per cent.
Experts predict that Sears Holdings now will be able to acquire the remaining shares it doesn't already own without having to raise the bid for minority shareholders.
"A pretty strict interpretation of the rules would suggest that Sears Holdings is in pretty good shape here," said Richard Powers, a lawyer and associate dean at University of Toronto's Joseph L. Rotman School of Management.
Added Ron Mayers, vice-chairman at Desjardins Securities, which sold its shares in Sears Canada in February: "Essentially, Eddie gets to do what he wants to do."
Nevertheless, essentially everyone comes out a winner, Mr. Powers said. Mr. Lampert waited patiently and probably will get his prize - taking full control over Sears Canada and its almost $1.4-billion of cash. Mr. Ackman probably will exit with close to $500-million, he estimated. And shareholders have seen the stock rise from close to $18 in 2006 to $29 today.
Still, at least some remaining minority shareholders aren't pleased. Colin Stewart, portfolio manager at JC Clark - a shareholder in Sears Canada since 2002 - said he thinks Sears Canada is worth more than $30 a share.
"It appears that they may be able to squeeze out the minority shareholders but we also have various remedies to potentially argue for a higher price," he said late Friday.
Mr. Stewart, whose firm holds about 700,000 shares, or roughly 1 per cent of Sears Canada, criticized it for sitting on cash that could have been returned to shareholders in dividends or share buybacks.
But Dene Rogers, chief executive officer of Sears Canada, said the company was being prudent in a tough economy to preserve cash, as well as use it for operations such as to purchase inventory. He did not comment on the Sears Holdings share acquisition, referring questions to the parent. Its spokespersons wouldn't comment.
Mr. Powers said it's unlikely that minority shareholders would have the resources to mount a challenge to Sears Holdings. "They can slow down the process but it's unlikely they can stop it now - and at what cost?" he asked rhetorically.
Investment banking sources expect that Sears Canada will be private within three months. "It costs money to remain publicly traded," Mr. Mayers noted.
SEARS CANADA (SCC-T)
Close: $29; down 52 cents
Andrew Willis