Bankruptcy proceedings for the legendary American retailer Sears, a company that has teetered on the edge of insolvency for years, just became even more complicated.
Sen. Elizabeth Warren (D-Mass.), a 2020 presidential candidate, has sent a letter to Eddie Lampert, chairman of Sears Holdings, asking him for “a long-term plan to protect workers.”
The letter follows Sears’ acceptance of Lampert’s bid to buy the company out of a bankruptcy that occurred under his leadership and was sent five days prior to the bankruptcy court hearing concerning approval of the sale.
“If your offer is accepted and approved, Sears will remain open and tens of thousands of American workers will keep their jobs in the short term,” Warren wrote. “But I am concerned that under your leadership, Sears may continue to struggle and employees will continue to face uncertainty and anxiety over their future employment and ongoing risks to their benefits and economic security.”
Warren’s letter raises concerns about Lampert’s commitment to Sears employees, alleging a history of slashing jobs at the company. In recent years, under his management, thousands of stores have closed and more than 200,000 workers have lost their jobs.
Lampert, she wrote, is also being sued for mismanagement of employee retirement funds, resulting in a $1.4 billion shortfall in the company’s pension fund, a deficit that the Pension Benefit Guaranty Corporation, the government agency responsible for insuring pension plans, will likely be forced to cover.
On Jan. 23, 2019, the Unsecured Creditors Committee of Sears, a group comprised of nine of Sears’ major creditors, filed a 570-page motion alleging fraudulent activities by Lampert and his firm, the hedge fund ESL, during his tenure as chairman and CEO of Sears. These include allegations of falsified financial projections, insider trading, unnecessary spin-offs, and excessive buybacks for ownership gains “that demonstrate an established pattern of stripping value from Sears for personal profit,” Warren noted.
“These inherent conflicts of interest and the decisions you made while running the company have short-changed Sears’ workers, leaving a company with a long, proud history in American retail on its last legs,” she added. “As Sears emerges from bankruptcy, these conflicts must be eliminated, and Sears’ workers and the American public must be certain that you are doing everything you can to keep the retail chain healthy over the long-term.”
Warren’s letter poses a series of questions to Lampert about his commitment to the long-term success of Sears and the protection of its workers. They include:
- How will you balance Sears’ debt burden with the need to invest in the company, its operations, and its workers to ensure its long-term viability?
- What specific steps will you be taking to reduce the number of Sears employees who lose their jobs and to protect workers’ and retirees’ pensions and other benefits?
- Will you provide severance payments for workers who lose their jobs under your plan to emerge from bankruptcy?
- Will you commit to a five-year freeze on stock buybacks in order to better ensure the company’s long-term success?
- What cost-cutting efforts will you pursue before closing additional stores or firing additional employees?
- How will you avoid conflicts of interest that have plagued you at Sears and ESL Investments in the past?
- Will your offer relieve the PBGC of any of the $1.4 billion burden from the underfunded Sears pension without cutting any of the benefits earned by workers and retirees?
- How will you guarantee fair and reasonable severance packages for all employees who have lost their jobs since October 2018, and those who will lose their jobs in the future?
- How will you address concerns from unsecured creditors amidst lawsuits against you from your prior management of Sears?
Warren requested detailed responses to her questions by Feb. 14.
A spokesperson for ESL Investments said the firm has received Warren's letter and is reviewing it. Initially, it has several concerns with the allegations made.
“Our going concern bid for the assets of Sears Holdings in a transparent, court-supervised auction reflects our belief in the potential to create a successful company that can benefit from the changes in today's retail environment,” the hedge fund said in a statement. “It offers Sears the only long-term opportunity to save and create jobs, honor the extended warranties that were purchased by so many customers, generate new value and grow. Our bid is consistent with our longstanding commitment to provide Sears with the runway it needed to transform, enable the company's return to profitability and help meet its significant pension obligations. Sears funded nearly $5 billion into its pension plans during the period when Mr. Lampert led the company and offered annuitization options and lump sum payments which benefitted hundreds of thousands of plan participants.”
“ESL has been a constant source of financing for Sears Holdings over the past several years, including through the extension of $2.4 billion in various secured financings to the company,” the spokesperson said. “These financings and other transactions involving Sears' assets were undertaken to facilitate the company's continued operations and implement its transformation plan. We remain confident that the processes we followed are unimpeachable."
ESL has disputed claims made by the Unsecured Creditors' Committee in various legal filings. The “assertions are misleading or wrong, and ESL will address them in the appropriate venue through its court filings,” the spokesperson said. “ESL's focus is on the upcoming sale hearing and presenting to the Court why our going concern bid is the best path for Sears, its associates, vendors and other stakeholders, and the many communities touched by Sears and Kmart stores."
A bankruptcy judge is set to make a final decision on ESL and Lampert’s offer on Feb. 4.