Updated, 9:07 a.m. | Sears said on Thursday that it expected to raise up to $380 million by early November by offering existing shareholders the right to buy shares in Sears Canada, giving the struggling retailer a much-needed cash infusion ahead of the critical holiday season.
The company, which also runs the Kmart discount store chain, said its board approved a rights offering of 40 million shares in Sears Canada. The company said it expected to receive $168 million by late October from its billionaire chief executive and largest shareholder, Edward S. Lampert, and his hedge fund, ESL Partners, which intend to exercise their rights to the shares – though neither has entered into any agreement to do so.
Fairholme Capital Management, another Sears shareholder, also expects its clients to participate in the rights offering, the retailer said in a statement. Sears said it expected to receive the remainder of the $380 million in early November, assuming the rights offering was successful.
ESL Partners and Fairholme Capital Management could not be immediately reached for comment.
Sears, based in Hoffman Estates, Ill., has been hit by declining sales. In the second fiscal quarter through Aug. 2, Sears Holdings booked a net loss of $573 million, failing to meet analysts’ already pessimistic forecasts and bringing the retailer’s half-year loss to $1 billion.
Starved of cash, Sears stores remain pitifully underfunded. Pictures of barren shelves and badly stained carpets posted last year on the blog of Brian Sozzi, chief executive of Belus Capital Advisors, caused a stir online and underscored the retailer’s plight.
The Sears Canada rights offering should bring to about $1.45 billion the proceeds from various efforts by Sears to generate liquidity this year. Last month, Sears secured a separate $400 million short-term loan from Mr. Lampert and ESL Partners. Sears has also raised $500 million from spinning off its Lands’ End division, and $165 million in real estate transactions.
It is critical for Sears to secure financing ahead of retail’s busiest time of year, as manufacturers get ready to ship out orders for the fall and Christmas seasons. Suppliers are at risk of balking at shipping to Sears stores if they deem the risks of not getting paid are too high, analysts say. But Sears desperately needs the latest, sought-after merchandise if it hopes to start generating positive cash flow.
Sears had been exploring a sale of its 51 percent stake in its Canadian unit for some time. But it has not found any takers. Sears Canada had generally performed better than its parent, posting $446.5 million in net income last year. Still, the retailer is losing ground to local competitors as well Walmart, Target and other American retailers that have made inroads in Canada. In its latest quarter, Sears Canada lost $21.3 million, despite layoffs and lease sales.
Sears Canada said last month that its chief executive, Douglas C. Campbell, would step down by the end of the year, just a year after he took the reins. A successor has not been named.
Correction: October 2, 2014
An earlier version of this article misstated the Sears plan. It will raise additional money by offering existing shareholders the right to buy additional shares in Sears Canada, not by selling rights to its stake in Sears Canada.
A version of this article appears in print on 10/03/2014, on page B 5 of the NewYork edition with the headline: Raising Capital.
