The moment of truth stemmed from the Debtors’ obligation to inform ESL and other bidders whether they had made the “qualified bidder” cut and were still in the bidding game.
As of Sunday morning, notwithstanding generous off-record input described further below, neither the Debtors nor ESL had made statements or Court/SEC filings as to where the Debtors’ bankruptcy now stands. Ostensibly, barring a yet further drawing of an ultimate line in the bankruptcy sand, the Debtors’ directors and ESL now know whether Sears will live, in the hands of ESL, or die in the hands of liquidators.
“If we were required to bid on the different component assets separately, the aggregate consideration we would be prepared to offer would be significantly less than we have submitted in our Going Concern Proposal…we also are submitting bids with respect to individual assets in the event that our Going Concern Proposal is not declared a ‘Qualifying Bid’ and subsequently accepted.”
“… conditioned on (1) confirmation of Buyer’s right to credit bid the secured debt in the amounts described herein (and without any requirement to cash collateralize or otherwise backstop any portion of the credit bid) and (2) a full release by the Debtors of ESL and certain ESL-related parties from any liability related to any prepetition transactions involving ESL. “
“If the Going Concern Proposal has not been determined to be a ‘Qualifying Bid’ prior to 4:00 p.m., New York time, on January 4, 2019, the Going Concern Proposal and the executed Asset Purchase Agreement shall automatically terminate and be deemed withdrawn….If the Alternative Proposal has not been determined to be a ‘Qualifying Bid’ prior to 4:00 p.m., New York time, on January 4, 2019, the Alternative Proposal and the executed Alternative APA shall automatically terminate and be deemed.”
It is no surprise that there are reports of frantic Board meetings and it is a certainty that senior lawyers and financial advisers are being pushed to provide uncomfortably definitive advice as to what the ESL offers are actually worth.
It is also no surprise that, in addition to valuation issues, the Debtors’ board is reportedly struggling with two of ESL’s most important asks, (i) the right to credit bid and (ii) the right to slip out of prepetition liability.
“The retailer started laying the groundwork for a liquidation after a series of meetings Friday in which its advisers weighed the merits of a $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.”
Given the fact that the Friday 4pm deadline is further to Court approved bidding procedures [Docket No. 816], it is not clear what sort of wriggle room the Debtors have left themselves in terms of engaging in yet another round of negotiations with ESL, if indeed ESL’s proposals have been rejected.
Anything remotely appearing like a “do over” will be met with howls of protest from other bidders and possibly with a derisory response from the Court itself.
As outlined in two recent Monthly Operating Reports filed with the Court in respect of October and November 2018 [Docket Nos. 1450 and 1451], the Debtors are burning through $100’s of millions a month; they little need further delays resulting from anything that looks like favoritism towards ESL or mis-management of the bidding process.
One possible path for a board looking to play it somewhat safer, would be to name one of ESL’s proposals as a back-up bid to a “winning” bid from a liquidator. This second place finish would nominally keep ESL in the game and give the Board further time to evaluate ESLs runner-up bid against that of the winner.
Given, however, that a winning bid is likely to be from a liquidator and that liquidating efforts would begin almost immediately, it is unclear how much more time and space a second place finish would afford ESL and the Debtors.
We will know more shortly…meanwhile those 50,000 employees and communities “touched by Sears and Kmart” wait very nervously indeed.
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