Shares of Sears Holdings (SHLDQ) were soaring after the bankrupt retailer reached an 11th-hour rescue deal with Chairman Eddie Lampert, who is also the company's biggest shareholder and lender through his hedge fund, ESL Investments. The news was the best sign yet that shareholders may not be wiped out in a bankruptcy. As a result, the stock climbed 51.5% as of 2:46 p.m. EST to $0.75 a share.
Though Sears has yet to make an official filing or a press release on the news, according to multiple news outlets, Lampert won a bankruptcy auction after increasing his offer for the business from $4.4 billion to $5.3 billion, including the assumption of some liabilities. Lampert plans to keep a core group of about 400 stores open, down from 866 as of Aug. 2018, though that was the best possible outcome for Sears' shareholders as Lampert outbid liquidation firms like Abacus Advisory Group that would have sold off all inventory and other assets, and closed all stores.
The next step in the proceedings is for the rescue plan to gain approval by a bankruptcy judge at a hearing scheduled for Feb. 1. While Lampert's deal is clearly good news for shareholders in the short term, the retailer continues to bleed cash while it's in bankruptcy, and its prospects for a successful future even if it emerges from bankruptcy look dim.
Shareholders should also be mindful that even if the company comes out of bankruptcy, it's likely to issue new shares, and existing shareholders could be left with zero. Given that, today's news is not a good reason to buy Sears stock.
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