Eddie Lampert lost about $475 million yesterday when shares of his Sears Holdings fell $7.24 to close at $97.48 (now at $96.61), after Bank of America temporarily closed a billion dollar line of credit. Lampert, a close personal friend of DealBreaker, told us that he’s not too worried about the drop, and shareholders shouldn’t be either. To prove his point, Big E sent out a quick letter to the interested parties last night. Find it after the jump.
Oh, man I love sports metaphors. Eddie Lampert do too.
Sears let everyone in on a secret yesterday: despite its reputation as a hedge fund operating under a tradition retail name, the company is still trying to sell stuff in retail stores. It’s just not doing a very good job of it. Same store sales at Sears stores fell 4%, and same store Kmart fell by almost as much. Earnings are expected to come in around half of where analysts had pegged them. It tried to pull a Home Depot by announcing a buy back but it was too little, too late.
This prompted Market Watch’s Herb Greenberg to write that “Sears as a retailer is a bust.” He went on to say that Sears excuses for the poor performance of its retail business have been repeated so many times that they’ve become implausible.
“The hope and hype of the Sears story, no matter how much the company says otherwise, has been as an asset play and hedge fund — not as a retailer,” Greenberg says. “The only upside surprise, it would appear, would be another quarter saved by a winning derivatives play. Given this market, depending on the bet, even that would increasingly appear a stretch.”
Greenberg’s column is titled “Sears: Give it Up Already,” which may be a reference to the now-implausible attempts to explain away poor performance with promises of cost cutting measures. Or Greenberg may be recommending something more dramatic. Namely, that it may be time for Sears to exit the retail business altogether. Or, at the very least, admit that your strategy does not involve sales growth.
Back in May, Eddie Lampert more or less admitted as much, telling investors that sames store sales growth is not the “be-all and end-all” for the company.
Sears: Give It Up, Already! [Market Watch]
Eddie Lampert may be betting that former US Treasury Secretary Robert Rubin is poised to take over as chief of Citigroup, according to a former colleague of both Lampert and Rubin. Earlier this week, Lampert’s ESL Investments disclosed that it had accumulated a 0.3% stake in Citi, setting off speculation about Lampert’s intentions. Speculation ranged from notion that Lampert might view Citigroup as cheap relative to it’s banking peers—this came from an unnamed banker who happens to work at Citigroup—to the idea that he might be poised to take an “activist investor” stance and agitate for change. Shares of Citigroup role 4% following the disclosure of ESL’s position.
“Lampert is tight with Rubin. He loves the man. Idolizes him. He may think that Rubin’s about to become a lot more involved at Citigroup, maybe even to take over for Prince,” the source said, referring to Citigroup chief executive Chuck Prince.
Rubin rose to Wall Street at Goldman Sachs before being appointed to the Treasury position by Bill Clinton. He is now the chairman of Citigroup’s executive committee. Early in his career Lampert worked under Rubin when he was an arbitrage trader at Goldman Sachs. This morning’s Wall Street Journal described Rubin as one of Lampert’s “leading role models.”
Yesterday CNBC’s Charlie Gasparino said that there was pressure for Rubin to take a more active role in the management of Citigroup. His position at the head of the executive committee brings him a hefty paycheck—reportedly $17 million—but some have said he doesn’t exercise much responsibility for the management of the bank. At least one banker employed at an investment bank described Rubin as “a relationship guy” whose job mainly involved using the connections he has made during his long career in finance and government to win business for the bank.
Prince’s tenure at the top of Citigroup has not been a happy one. The bank has been under-pressure from investors to change its management and some have even suggested that it spin off some of its constituent businesses. Prince is widely seen as unwilling to fundamentally change the structure of Citigroup.
Will Chorus Grow at Citi? [Wall Street Journal]
The big news across the wires this morning was Eddie Lampert picking up 15.24 million shares of Citigroup. Shares of Citi shot higher following the news amidst speculation that Lampert might push to break-up the company.
DeaBook quotes one observer who buys the line that Lampert might shake things up at CIti.
Mr. Lampert, chairman of the parent of the retailers Sears and Kmart, “would have the clout to make management changes,” Richard Sichel, who oversees $1.5 billion as chief investment officer of Philadelphia Trust Co., told the news service. “The market is hoping he can come in and create value in one way or another by cost cutting or finding value in the different parts.”
Many observers, however, doubted that Lampert is up to anything but buying a stock that has been badly beaten
down for most of the year. “He may just think the stock is cheap,” according to a senior executive at a rival bank who was quote in the Financial Times.
Felix Salmon, who writes the Market Movers blog for Portfolio, sounds the skeptical note
Lampert is certainly a rich and powerful man, but I don’t think he quite has the power that Sichel attributes to him. His friendship with Bob Rubin might get him a meeting on the third floor of 399 Park Avenue. But that’s probably about it.
On CNBC, Charlie Gasparino, however, says that Lampert “could really turn the screws on [Citigroup chief executive] Chuck Prince.”
Lampert fund builds $800m stake in Citi [Financial Times on MSN Money]
Lampert took big stake in Citigroup: SEC filing [Market Watch]
Lampert Fund Takes Stake in Citigroup [DealBook]
Lampert’s Options at Citigroup [Market Movers]
Street Stories: Citigroup [CNBC.com]
Sears Holdings is attempting to take Sears Canada private at $18/share but some minority shareholders (Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP, among others) are dissenting. (Pershing thinks it’s worth $41.21- $46.67.) But most vocal is the company’s ex-chairman and CEO, Richard Sharpe, who takes particular aim at Sears Holdings’ chairman, who happens to be…
“None of them really know anything about retailing … Eddie Lampert of ESL (Investments) doesn’t know anything about retailing and couldn’t care less about it.”**
Apparently, Eddie Lampert-bashing has become a cultural export. Next thing you know, the French will be doing it. (And in the interim, the French-Canadians.)
** Lest this be mistakenly perceived as an endorsement of Sharpe’s views: we’re fairly certain Lampert knows “a thing or two” about retailing.
Sears Canada Set to Go Private, ex-CEO Calls Deal “Corporate Cannibalism” [CBC News]