Sears Compromises for Restoration Buy

Date: Tuesday, December 11, 2007
Author: HFN Daily Report

Sears Holdings agreed to sign a confidentiality agreement with takeover target Restoration Hardware, after a compromise by both sides.

Sears had asked for confidential financial information, but Restoration balked, saying it would provide it only if Sears would refrain from a hostile takeover. The confidentiality agreement represents a compromise by both sides, since Sears' ability to attempt a takeover outside of the regular bidding process is now more limited.

Sears is offering $6.75 a share, or $269 million, for Restoration.

Sears continued interest in the acquisition seems puzzling, given that the company announced a 99% profits drop in this year's third quarter from the same time last year.

Restoration also just announced its third-quarter results, with a loss of $15.2 million, almost three times its $5.7 million loss in the third quarter of 2006.

Sears' hedge fund head Edward Lampert is not only struggling to manage the retail giant cobbled together from Sears and Kmart, but firm ESL Investments isn't doing so well either. ESL lost $4.47 billion in the third quarter.

Lampert's recent decision to up his stake in Citi to 24.8 million shares had analysts wondering what happened to the once-golden touch of the hedge fund manager. The Citi sales purchase happened not long before the bank ousted its Chief Executive Officer Chuck Prince after revelations that Citi would be writing down billions of dollars for its exposure to securities backed by subprime mortgages.