DJ CNBC's FABER REPORT: Sears' Big Shareholder >S
10/29/2002
01:29 PM
DJ CNBC's FABER REPORT -2: Full Transcript Of Report
The following is a transcript of reports aired earlier Tuesday on CNBC by reporter David Faber:
Investors in troubled retailer Sears have taken note of a government filing out yesterday that lists ESL Partners as an owner of 22.8 million Sears shares.
The filing is a 13G, which is required when an investor exceeds 5% of a company's outstanding shares. The G connotes that investor's intention to be a passive investor. In this case, ESL controls roughly 7.2% of the company.
The filing is noteworthy. ESL is a large hedge fund run by Eddie Lampert, an investor who is known for taking very large positions in particular companies, oftentimes retailers, and ultimately proving correct in his assessments.
Lampert's ownership of Sears shares is said by people familiar with it to extend back a couple of years to the time when CEO Alan Lacy was first brought on board. In recent weeks, however, Lampert has added million of shares bringing his firm's stake to a filing position. He is in regular contact with management.
Lampert's fund, which exceeds $5 billion in assets, has had great success in recent years with very large investments in other retail-related businesses such as Autozone, Office Depot and Autonation.
Lampert, while right now a passive investor in Sears, has taken a more proactive approach in situations such as Autozone, in which his fund still has a very large position and more recently Kmart, in which his firm controls a sizeable amount of debt and is pushing the company's management to emerge quickly from Chapter 11.
In the case of Sears, Lampert's fund has used weakness in the stock to add to what was already a sizeable position. On October 17th, Sears said that it would fall short of earnings estimates due to a $220 million addition to its reserves for uncollectible accounts in its credit card portfolio. That news, coming only one week after Sears said it would meet estimates despite problems at the credit card division, damaged investor confidence and apparently paved the way for Lampert to increase his positions well beyond the 5% that forces a filing. Right now, it's likely he's under water in the investment, which at current prices is worth roughly $600 million.
Lampert has not returned a call for comment. He is renowned for his patience and given he has a five year lock-up on money invested in his fund. He can be patient. That patience has also been rewarded: his 14-year track record as of last year was an average annual return of 24.5%.
As for Sears, opinion right now is, not surprisingly, divided. Some investors see it as the cheapest of retailers, trading as it is at an astoundingly low 4.6 times next year's estimates.
And they point out that the retail division is doing OK and note that management, including CEO Alan Lacy, have been buying stock of late.
Others see danger from a credit card portfolio which they claim is still weakening and does not yet fully reflect the poor credit quality of some of its customers.
Naysayers also expect that the rating agencies will soon move to downgrade Sears' debt, making for more near-term weakness in the stock price and heightening concerns about liquidity.
(END) DOW JONES NEWS 10-29-02
02:44 PM |
