Deborah Baic/The Globe and Mail
U.S. retail giant Sears Holdings Corp. will pay $560-million to boost its stake in Sears Canada Inc. to a level that will allow for a forced privatization of the national retailer.
The sellers are a group of funds run by activist investor Bill Ackman, who also has a stake in Target Corp., one of the biggest chains of department stores in the United States, and book retailer Borders Group Inc.
Sears Holdings, which owns both the Sears and Kmart retail chains in the United States, will increase its ownership in Sears Canada by paying $30 a share for the 17.57 per cent of Sears Canada held by Mr. Ackman's Pershing Square funds.
This isn't the first time that financier Edward Lampert, who heads Sears Holdings, has attempted to take the Canadian subsidiary private. In 2006, he made an offer of $18 per share, but minority shareholders said the price was too low.
The Chicago-area holding company said in Friday's announcement that "the purchases are being made as we consider them to be an attractive investment." The purchase increases its stake in Sears Canada to 90.4 per cent, and is expected to close on Tuesday.
Canadian securities law provides for a majority shareholder with at least 90 per cent of a publicly traded stock to force minority holders to sell, provided all are treated equitably.
Sears Canada employs about 33,000 employees across the country and operates a network of corporate stores and dealer stores, as well as home improvement showrooms and catalogue merchandise pick-up locations.
The last time that Sears chased a higher stake in the Canadian department store chain industry speculation mounted that it might try to sell off the assets to another retailer.
Major players in the U.S. were considered potential buyers for the real estate owned by Sears Canada, including Federated Department Stores, now Macy's Inc., and Target.
However, it's unlikely that Sears will try to sell the assets this time around, suggested Brian Yarbrough, a research analyst at Edward Jones in St. Louis.
"I definitely think they want to own this," he said, noting that Sears' stores are unlikely to attract Target, despite the previous speculation.
"A lot of those stores are two levels. And Target doesn't want to be attached to malls, Target likes to be attached to strip malls."
Canadian retail giant Hudson's Bay Trading Co., which operates the Bay, Zellers and Home Outfitters stores, had also been named as a potential buyer.
In its latest earnings results Sears Canada reported that tightened expenses helped drive a $128.2-million profit for the fourth quarter, a 29 per cent increase from the year-earlier period.
Revenue fell, however, to $1.525-billion - a decline of $91-million or 5.6 per cent.
On Friday, Sears Holdings also provided a first-quarter profit outlook in range of analysts' expectations. The retailer indicated that its quarter-to-date sales at stores open at least a year are up 1.7 per cent, with Kmart rising 3.2 per cent and Sears domestic stores climbing 0.3 per cent.
The company said Kmart saw improvement in clothing, home and toys, while its Sears stores reported better sales of home appliances, somewhat offset by lower sales of tools and home electronics.