Sears implosion costs hotshot CEO a fortune
Edward Lampert was supposed to be the next Warren Buffett. But the largest investor in and CEO of Sears Holdings (SHLD) has seen the value of his holdings in the struggling retailer decline by an estimated $1 billion over the past five years.
Sears shares are tanking again Tuesday after the retailer warned the fourth quarter of last year was worse than expected and plans to shutter stores would be accelerated. Shares are down $1.16, or 7%, to $15.57 Tuesday creating a brutal 81% decline in the stock in five years. Things are so challenged at the company it is one of 29 companies listed on a U.S. exchange Standard & Poor's Ratings calls a "weakest link" because it has a low credit rating and a negative outlook.
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No one else is feeling the pain as much as Lampert, a hotshot hedge fund manager who orchestrated a merger of Sears with Kmart in the mid-2000s to create Sears Holdings. Lampert attempted to use the retailer's cash flow as an engine to power his hedge fund business. His strategy was likened to how Buffett uses the cash flow from his stable insurance business to allow him to make investments. BusinessWeek's cover story in November 2004 had a photo of Lampert with the headline, "The Next Warren Buffett?"
But the Sears retail business has been devouring cash - not generating it. Sears burned $1.7 billion in free cash flow in the 12 months ended October, the latest reported, according to data from S&P Global Market Intelligence.
The results have been costly for Lampert, as he's the largest single shareholder in Sears with 30.7 million shares or a roughly 30% stake in the company, says S&P Global. Lampert at least has shown conviction, as he's added to his holdings which totaled just 17 million shares in as of the end of 2010, S&P Global says. That doesn't even include the 22.3 million shares owned by Lampert's investment fund, ESL Investments.
Part of Lampert's losses on Sears stock have been offset a bit by financial moves taken by the retailer over the years to unlock value. Mid last year, Sears spun off real-estate assets in the form of a publicly traded company Seritage Growth (SRG). Lampert owns 531,558 shares of that company valued at roughly $20.2 million. His ESL Investments unit owns 444,335 shares. Lampert also owns 10.5 million shares worth $220 million of Land's End (LE), a retailer spun off from Sears. His investment group ESL Investments also owns 6.7 million shares of Land's End.
But no matter the precise size of the Lampert's loss, it's fair to say that Sears isn't going the direction investors would have liked. Looks like the insurance business might have been a better choice.
LARGEST INVESTORS IN SEARS HOLDINGS
Investor, number of shares held
Edward Lampert, 30,696,769
Fairholme Capital, 28,471,548
ESL Investments*, 22,336,105
Horizon Kinetics, 4,424,070
Thomas Tisch, 3,731,719
Source: S&P Global Market Intelligence
* Lampert is CEO of ESL Investments