Sears Holdings‘ board of directors received a letter from ESL Investments, the hedge fund led by the company’s Chairman and CEO Edward Lampert, proposing to buy the company’s Kenmore appliance division, Sears Home Services (SHIP) and PartsDirect.

The letter notes that Kenmore, SHIP and PartsDirect have substantial value and that divesting one or more of them would enable Sears to improve its debt profile and liquidity position.

The letter outlines the following:

  • ESL’s non-binding proposal to acquire SHIP and PartsDirect based on an enterprise value of $500 million and on other terms set forth in the letter
  • ESL’s willingness to submit a proposal to acquire Kenmore
  • ESL’s willingness to make an offer for certain real estate owned by the company (including the assumption of certain debt obligations secured by that real estate) with the expectation of entering into an ongoing master lease for some or all of the stores to allow for their continued operation

The letter emphasizes that ESL’s principal interest is in seeing that the Kenmore, SHIP and PartsDirect businesses are divested in the near term at a full and fair value, regardless of whether ESL or a third party is the ultimate buyer.

To ensure a fair process, ESL confirmed that:

  • It will not participate in any transaction as a buyer unless such a transaction is both recommended by a committee of independent directors of the company’s board and approved by the holders of a majority of the shares of common stock of the company held by disinterested stockholders.
  • Lampert and Kunal S. Kamlani will not participate on behalf of the company (as officer or director) in any discussions, deliberations, negotiations or decisions with respect to a potential transaction in which ESL participates as a buyer, except to the extent specifically requested by that committee.
  • It would accept that any transaction in which ESL participates as a buyer would be subject to a “go shop” process on reasonable terms.

Sears responded that the letter will be reviewed and considered by a committee of independent directors of its board. It added that there can be no assurance that this letter will result in a transaction or on what terms any transaction may occur.