The complex transaction gives the U.S. parent a badly needed cash injection, right as the company is headed into the key holiday shopping season that's increasingly looking like a make-or-break period for the venerable department store chain.
The sale of 40 million shares means the U.S. Sears has given up its 51 per cent control of its Canadian arm, while still keeping about 12 million shares, worth some $113 million.
The Chicago-area company, which owns Sears, rival Kmart and other retailers, says it will get the cash from the transaction in two chunks of about $170 million US each — one in late October, and the other in early November.
The investment arm, known as ESL Investments Inc., is the private holding company of Lampert, the chair of the U.S. parent. ESL was already the second-largest owner of Sears Canada before the deal, with abou 27 per cent. Now, ESL has majority control.
ESL is also the largest shareholder of the U.S. retail arm, Sears Holdings, with 24.8 per cent while Lampert directly owns 23.7 per cent of Sears Holdings.
Under the deal, ESL and Lampert acquired subscription rights (a financial instrument that allows existing shareholders of a company to acquire more shares in the company, for a discount) to buy Sears Canada shares at $10.60 each.
That`s a marked discount to the $11.12 level Sears Canada shares closed at on Wednesday before the deal was announced. Sears Canada shares were down about one per cent to $10.99 on the TSX on Thursday.
Sears has warned for several quarters it was exploring options for its Canadian arm, which has been downsized in recent years in the face of tough competition from U.S. chains like Target and others setting up shop north of the border.
But the chain still has 176 stores across Canada, along with 222 Hometown stores — although the latter have launched a class action lawsuit against Sears this week. (Hometown stores are stripped-down retailers with Sears-branded merchandise in small towns not busy enough for a full Sears store.)
Last week, Sears Canada`s CEO Douglas Campbell said he intends to leave the job and return to the U.S. by the end of the year for personal reasons.