Thursday, May 17, 2012

Sears (Nasdaq: SHLD) Plans to Spin Off Part of Canadian Unit

Sears (Nasdaq: SHLD) Plans to Spin Off Part of Canadian UnitShawshank, VA 5/17/12 (StreetBeat) -- Sears Holdings (Nasdaq: SHLD) announced on Thursday that it would spin off part of its Canadian unit, a poor performer that has weighed down the struggling retailer.

The move to sell shares in the unit, if approved by regulators, would reduce the holding company’s stake in Sears Canada to 51 percent from 95 percent. Sears indicated that it could further wind down the stake, disclosing in a statement Thursday that “subsequent to the spinoff,” the company could sell “any portion of its remaining interest in Sears Canada.”

The planned spinoff is the latest step in a broader effort by Sears and its chairman, Edward S. Lampert, to raise cash and allay concerns about liquidity problems. The retailer, based in Hoffman Estates, Ill., is seeking to regain its footing through selling some of its most profitable stores.

The Canadian arm of the company, however, is one of the worst performers. In a letter to shareholders earlier this year, Mr. Lampert acknowledged that the unit “experienced very poor results.” Even as the holding company returned to profitability, announcing Thursday first quarter earnings of $189 million, up from a $165 million loss from a year ago, the Canadian unit’s same-store sales declined more than 6 percent.

In the statement, Sears said it “believes that the spin-off will provide investors with a more targeted investment opportunity by having equity in two separate public companies.”

Still, the spinoff marks a curious change in strategy for Mr. Lampert. In 2009, the hedge fund billionaire moved to exert more control over its neighbor to the north, gradually ratcheting up its stake in Sears Canada. The dwindling stake also comes as Target (NYSE: TGT), one of its top competitors, moves into the Canadian market.

The Sears deal is still subject to regulatory approval and the blessing of the Sears Canada directors. If the deal is finalized, Sears plans to continue including the Canadian unit as a subsidiary in its earnings reports.

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