Sears saved from liquidation: Judge approves deal

WHITE PLAINS, N.Y. — A federal judge on Thursday approved a last-minute deal to save Sears Holdings in shrunken form, giving the death-defying retailer a second chance at life. 

Judge Robert Drain authorized a deal to sell the major remaining assets of Sears to its chairman, largest shareholder and former CEO Eddie Lampert's hedge fund, ESL Investments.

Hours before Drain announced his decision, attorney Ray Schrock, who represents Sears, noted the gravity of the moment as closing arguments began.

"Today is obviously a very import day for Sears," he said to Drain. "The fate of Sears is going to be in the court's hands."

Putting Sears' plight in the broader context of the entire retail industry, which has been disrupted by forces ranging from Amazon to the rise of fast fashion, Schrock said, "like so many retailers, it's a melting ice cube, and the timing is urgent."

As sales cratered over the last roughly 15 years, Sears has closed more than 3,500 stores and cut about 250,000 jobs, leading to the company's Chapter 11 bankruptcy filing in October.

Without approval of the sale to ESL, Sears would have almost certainly liquidated altogether.

Instead, about 425 stores and 45,000 employees will be transferred to ESL. 

"The execution risk for this transaction, when one considers the alternative … is reasonable to take," Drain said.

Drain acknowledged that Lampert, who has been fiercely criticized for his role in the downfall of Sears, had been portrayed as a cross between the American railroad baron Jay Gould and bumbling fictitious character Barney Fife.

A Sears store. (Photo: Jonathan Weiss / Shutterstock.com)

"During the course of this case, Mr. Lampert, in particular, has been subject to substantial verbal abuse," Drain said. "He has the opportunity now not to be a cartoon character and take action that in fact would be of great meaning" to the company's employees, vendors and shoppers.

Although the company will survive, store closures are not expected to stop altogether.

Sears and Kmart employees expressed both "a sigh of relief" and "grave concern" in a statement released on their behalf soon after the deal was approved.

"I'm relieved I still have a job, but the future of my family is back in the hands of Eddie Lampert, who has proven he only cares about his own wealth and does not care about our families and our livelihoods," said Victor Urquidez, assistant manager at Sears Auto Center, in the statement.

He urged Lampert to follow through in investing in stores, saying, "He needs to make sure that all employees who dedicated years to the company and whose jobs he destroyed get financial support for themselves and their families."

While Lampert's ESL will obtain ownership of the company's 425 remaining locations, ESL President Kunal Kamlani testified Wednesday that about 156 are not performing well. 

Under the deal, ESL would offer $5.2 billion including an $885-million cash payment. It will also assume $1.3 billion of liabilities including customers' warranties and paying off $621 million of senior debt.

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Customers shop at a Sears department store in Riverside, IL. Dec 2018. The 125 year old institution employees 68,000 people has been in bankruptcy since October 2018. TANNEN MAURY, EPA-EFEFullscreenCustomers look at a display of winter coats in a Sears store in the Brooklyn borough of New York. Company chairman Eddie Lampert has put in a bid to keep the business running in its entirety. Mark Lennihan, APFullscreenA customer shops in a Sears store, Jan. 7, 2019, in the Brooklyn borough of New York. Mark Lennihan, APFullscreenCustomers enter and leave the Sears store in St. Eustache, Quebec. July 21, 2017. Ryan Remiorz, The Canadian Press VIA APFullscreenForty-five Kmart stores and 18 Sears stores will be closing in late January 2018, the company said Thursday. Hal Degraff, of Livonia, Mich., stopped by to take a photograph of the Livonia Kmart. He has shopped there for at least a dozen years and said that he will miss it. Bill Bresler, USA TODAY NETWORKFullscreenFive tear old Anna Kane of Alton, Ill. looks down from "The Ledge," at the Sears Tower in Chicago, July 1, 2009. Kiichiro Sato, APFullscreenPeople watch the Apollo 11 Saturn V rocket launch on multiple TV's at a Sears department store in White Plains, N.Y. July 16, 1969. Ron Frehm, APFullscreenCustomers shop at Chicago's last remaining Sears store May 3, 2018 in Chicago. The store, which opened in 1938, is scheduled to close in July. Sears opened its first retail store in Chicago in 1925. SCOTT OLSON/GETTY IMAGESFullscreenSigns in the window of a Sears store advertise the store's closing on May 3, 2018 in Chicago. . The store, which opened in 1938, is the city's last remaining Sears store. Sears opened its first retail store in Chicago in 1925. SCOTT OLSON/GETTY IMAGESFullscreenOn Nov. 3, 2017, it was announced a total of 63 K-Mart and Sears stores have been targeted for closure to cut costs. Traffic passes by a Sears department store in Brooklyn's Flatbush, in New York. Sears, once the monolith of American retail, in March 2017 announced that there is "substantial doubt" that it will be able to keep its doors open. Bebeto Matthews, APFullscreenGenerations of Americans picked their holiday gifts from Sears catalogues, first published in 1933. In 2017 Sears brought back its "Wish Book'' with a digital twist hoping to lure consumers back to the retailer of toys, appliances and apparel. Sears, Roebuck and Co.FullscreenA shopper walks up to a Sears department store at the Tri-County Mall, in Springdale, Ohio in this March 2017 file photo. Sears will no longer sell Whirlpool appliances, ending a business partnership that dates make more than 100 years. John Minchillo, APFullscreenA repairman installs a Whirlpool water heater at a home in Los Angeles in this March 22, 2015, file photo. Sears will no longer sell Whirlpool appliances. Richard Vogel, APFullscreenCustomers shop at a Kmart store on Aug. 24, 2017 in Elmhurst, Illinois. Sears Holdings Corporation, the owner of Kmart, said today it was planning on closing another 28 Kmart store including this Elmhurst location. Scott Olson, Getty ImagesFullscreenA sign announcing the store will be closing hangs above a Sears store on Aug. 24, 2017 in Chicago. Sears Holdings Corporation, which owns both Sears and Kmart, said it was planning on closing another 28 Kmart stores. Scott Olson, Getty ImagesFullscreenCustomers shop at a Sears store in Woodfield Mall July 20, 2017 in Schaumburg, Ill. Sears announced that it had agreed to sell Kenmore appliances on Amazon.com. Scott Olson, Getty ImagesFullscreenShoppers walk into Sears in Peabody, Mass., on May 17, 2012. Elise Amendola, APFullscreenSears CEO Edward Lampert announcse the merger of Kmart and Sears back on Nov. 17, 2004. Gregory Bull, APFullscreenA worker repairs the sign outside the Sears Grand store in Solon, Ohio, on Feb. 13, 2015. Amy Sancetta, APFullscreenThis is a vintage Sears Roebuck & Co. in Rochester, N.Y. The company that operates Sears, the department store chain that dominated retail for decades, warned March 21, 2017, that it faces "substantial doubt" about its ability to stay in business unless it can borrow more and tap cash from more of its assets. Rochester Democrat and Chronicle via the USA TODAY NetworkFullscreenA crowd gathers for the grand opening of a Sears store on Chicago in 1932. APFullscreenSears, which at the end of its fiscal year had about 140,000 employees, said that it expects to continue to try to generate cash from real estate sales and borrowing. Rochester Democrat and Chronicle via the USA TODAY NetworkFullscreenAn early Sears catalog. APFullscreenA "Black Friday" advertisement for Sears is seen on an iPad in Annapolis, MD Nov. 16, 2014. Jim Watson, AFP/Getty ImagesFullscreenThe Sears store at Eaton Centre in Toronto, Canado Oct, 29, 2013. Frank Gunn, APFullscreenThe Sears at the Chambersburg Mall in Scotland, Pa. closed it's doors in January 2015. Markell DeLoatch, APFullscreenThe Sears at the Chambersburg Mall in Scotland, Pa. closed it's doors in January 2015. Markell DeLoatch, APFullscreenCraftsman tools sold by Sears at this Bethel Park, Pa., store. Gene J. Puskar, APFullscreenThis is a Sears-Roebuck in Rochester, N.Y. Rochester Democrat and Chronicle via the USA TODAY NetworkFullscreenFounded in 1886, Sears was built around its famous catalog that was so complete that entire houses could be ordered -- delivered in pieces to be built on a site. Rochester Democrat and Chronicle via the USA TODAY NetworkFullscreenThis is a Sears-Roebuck in Rochester NY. Rochester Democrat and Chronicle via the USA TODAY NetworkFullscreenWomen crowd the counters of one of the first Sears retail stores in 1925. APFullscreenFive year old Kathy Diviney receives a sucker after talking with Santa Clause at the Sears Department store in downtown Nashville Dec. 13, 1966. The Tennessean via the USA TODAY NetworkFullscreenThis ad is from a 1908 Sears, Roebuck and Company catalog. Journal & CourierFullscreenSears is under financial pressure and has warned it may fail. But it has seen many better days. Here, Sears store associates in Schaumburg, Ill. help customers shop more than 1,000 doorbuster deals on Thanksgiving Day in 2015 Jean-Marc Giboux, AP Images for SearsFullscreenA shopper leaves the Kmart store in Burbank, Calif., Kmart is part of Sears Holdings KEVORK DJANSEZIAN, APFullscreenA bronze plaque hangs near the entrance of Sears' flagship store in the Loop in Chicago Scott Olson, Getty ImagesFullscreenCraftsman tools are offered for sale at a Sears store Scott Olson, Getty ImagesFullscreenAppliances are on display at a Sears store in Berlin, Vt. Toby Talbot, APFullscreenA Sears store is seen in Coral Gables, Florida. Joe Raedle, Getty ImagesFullscreenOakland's Uptown Station, seen in a photo illustration, is a former Sears store GenslerFullscreenInterested in this topic? You may also want to view these photo galleries:Replay1 of 412 of 413 of 414 of 415 of 416 of 417 of 418 of 419 of 4110 of 4111 of 4112 of 4113 of 4114 of 4115 of 4116 of 4117 of 4118 of 4119 of 4120 of 4121 of 4122 of 4123 of 4124 of 4125 of 4126 of 4127 of 4128 of 4129 of 4130 of 4131 of 4132 of 4133 of 4134 of 4135 of 4136 of 4137 of 4138 of 4139 of 4140 of 4141 of 41AutoplayShow ThumbnailsShow CaptionsLast SlideNext Slide

The hedge fund's deal to acquire Sears does not preclude it from further cuts.

Greg Portell, partner and retail adviser at consultancy A.T. Kearney, said the company probably has about 200 stores that can be successful.

"I would advise them to get smaller," Portell said. "Get smaller and create a foundation from which you can grow, as opposed to a foundation which erodes."

Lampert, who relinquished the CEO role when the company filed for bankruptcy, was the company's largest shareholder and creditor at the time of the bankruptcy.

That means he had the most to lose and the most to gain as the company faced a do-or-die scenario.

A group of unsecured creditors argued the sale unfairly favors Lampert, characterizing the offer as part of a long-running "scheme" to drain the company.

"He set up a process where there was no alternative but ESL," said Abid Qureshi, attorney for the creditors. "This entire process was set up to fail."

But Drain disagreed. "It is clear to me that all told, ESL conducted itself…in good faith," he said. 

Drain, according to court testimony, wanted to preserve jobs if at all possible.

"We intend for the new company to operate as many Sears and Kmart stores as reasonably possible, including new smaller stores that emphasize our stronger capabilities. Continuing to operate a meaningful network of stores is essential to achieving our goal of returning Sears to profitability," ESL said in a statement earlier this week.

Sears attorney Schrock has said previously that if the deal were approved, it could be finalized on Friday.