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Sears said to prepare for possible liquidation as ESL bid fails

ESL unable to convince bankers of the viability of its bid, but can still make last-minute improvements

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Sears chairman Eddie Lampert's ESL Investments reportedly failed to convince bankers of the viability of its bid to buy the iconic retailer as a going concern.

New York

SEARS Holdings Corp is preparing to potentially wind down the iconic retailer after chairman Eddie Lampert's bid to buy several hundred stores out of bankruptcy fell short of bankers' qualifications, according to people with knowledge of the matter.

The retailer started laying the groundwork for a liquidation after a series of meetings on Friday in which its advisers weighed the merits of a US$4.4 billion bid by Lampert's hedge fund to buy Sears as a going concern, said the people, who asked not to be identified because the discussions are private.

While Mr Lampert's ESL Investments has failed to convince the bankers of the viability of its bid, it could still make last-minute improvements before a status hearing on Tuesday.

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Mr Lampert also has outlined a back-up plan in which ESL would pursue the purchase of some of Sears's parts, including selected real estate for US$1.8 billion and intellectual property, such as the brand name. Much of that plan would be funded by forgiving some of the debt he holds.

Spokesmen for Sears and ESL declined to comment, as did a representative for Lazard, which is advising Sears.

The retailer, which includes its namesake department stores and the Kmart chain, entered Chapter 11 protection in October with the hope that it could emerge from bankruptcy with less debt and a smaller group of more profitable stores.

The bid Mr Lampert submitted in late December intended to keep 425 stores open, while preserving up to 50,000 jobs.

But as representatives for the company - along with creditors and other parties - met in New York on Friday to assess the merits of the bid, they found a number of shortcomings, people with knowledge of the discussions said.

Gaps remained in some of the financing for the proposal, and the plan wouldn't have provided enough cash to cover costs incurred in the bankruptcy, the people said; it also undervalued inventory and other assets relative to what liquidators were promising to pay.

Another key sticking point: much of Mr Lampert's bid rested on him getting ownership of the reorganised business in exchange for the forgiveness of US$1.3 billion of debt he holds.

But the validity of those very claims - racked up in a series of spinoffs, refinancings and other transactions - has already been challenged by a group of creditors. The ESL plan didn't include a cash backstop for that part of the bid.

ESL has said its liens are valid and came after the firm extended more than US$2.4 billion of secured financing to keep Sears afloat. BLOOMBERG