March 18, 2009

Sears Canada: Potential buyout Candidate

SHLD continues to buy shares of Sears Canada. I think it will be a matter of time before it buys the whole company outright. From the national Post:

Sears Holdings Corp. continues to add to its nearly 73% stake in Sears Canada Inc. The U.S. retailing giant bought 29,600 shares of its Canadian subsidiary for around $17.85 per share between March 9 and March 10, 2009. This brought SHLD Acquisition Corp.’s holdings in the Canadian retailer to 20,756,173 shares. The transactions follow Sears Holdings Corp.’s purchase of 32,000 shares on Dec. 1, 2008.

In November 2006, Sears Canada shareholders rejected an $888-million bid by its parent after some investors said the $17.97 per share takeover price was too low. However, the potential deal sent Sears Canada shares nearly 50% higher since the offer was made to almost $30 per share.

The stock is now trading around $20

The company is now 73% owned by SHLD through a Canadian subsidiary, while Pershing Capital owns 17.31%. Actually Ackman has successfully thwarted Lambert from acquiring the whole company few years ago based on low priced offer. I think that was in 2006.

SHLD and Ackman continue to buy Sears Canada stock. SHLD increased its stake from 70% in early 2008 to 72.4% by end of 2008. Pershing raised its stake from 15% to 17.31% by end of 2008.

I think sooner or later SHLD will have to buy Sears Canada as the majority of cash on its balance sheet is from the Canadian subsidiary. SHLD, at current market price, can pay $552 million for the remaining stake in Sears Canada and get access to $810 million in cash sitting in its coffers. I think the buyout of Sears Canada by SHLD is just a matter of time.

The buyout now is more likely as, if remember correctly, Dec 31, 2008 marks the date where SHLD do not need to make whole Bank of novascotia and royal bank for their shares tender in the original failed buyout few years ago.

SCC now has very small float and average trading volume so these purchases affect the price significantly. In the last 2 days the stock has moved by 12%. 

No comments: