Sears' lenders, employees and chairman agree on one thing: The company needs a new CEO if it survives bankruptcy.
Eddie Lampert, the company's chairman, is seeking bankruptcy court approval to again buy Sears' operating assets and keep 425 stores open, using his hedge fund, ESL. But he's putting up relatively little cash of his own into the proposed $5.2 billion deal. Much of the money is coming from top banks providing $1.3 billion of financing.
Those lenders have a provision in their loans that says if someone from ESL is named CEO, they can require the appointment of a chief restructuring officer who would oversee the company's operations, it was revealed during a bankruptcy court hearing Wednesday. A chief restructuring officer typically has broad powers over a company's finances and operations and limits the freedom of the CEO to act.
The provision would apply to Lampert as well as Kunal Kamlani, the president of ESL and a member of the Sears board. The provision was discussed during questioning of Kamlani Wednesday by an attorney for a committee of creditors seeking to have the company liquidate rather than stay in business.
Wednesday was the second day of hearings in front of Bankruptcy Court Judge Robert Drain, who will decide if Sears survives. The hearing took nearly 7 hours. Final arguments are expected starting at 9 a.m. on Thursday. Judge Drain has said he could rule from the bench following the arguments, or issue a decision soon thereafter.
Kamlani told the court that uncertainty about Sears' future is what has stopped the company from hiring a CEO. He said a top-quality chief executive would not take a job running a company that could be forced out of business within months.
"Could I have hired a CEO last week? I could. But probably not the one I want," said Kamlani. "So the decision was made to wait and hire the one we want going forward."
In a filing earlier week ESL predicted that Sears will be able to hire a CEO "with a proven track record in effectuating large scale dynamic transformations."
Lampert has been chairman of Sears Holdings since he brought Sears and Kmart together in a 2005 merger. He was the largest shareholder, and in 2013 he assumed the title of CEO, a job he held until the day Sears filed for bankruptcy in October. The company never made an annual profit while Lampert was CEO, and it racked up billions of dollars in losses. Debt mounted and hundreds of stores were closed.
Sears has not had a CEO since its bankruptcy filing, with a committee of top executives serving as the "office of CEO."
There has been widespread criticism of Lampert and the way he ran Sears. In a letter sent to the court Tuesday, a group of current and former Sears employees asked the judge to agree to the sale of assets to Lampert and ESL because that was the only way to save the company and the jobs of 45,000 workers. The group also asked the judge require the chairman and CEO jobs be split.
"We are stuck between a rock and hard place as neither option offers us a secure future," said the letter about the choice between Lampert's control and closing the company. "We want Sears Holdings to succeed, not be a pawn in Lampert's game. The reality, as we know from our lived experience, is that Lampert has been putting the company through the longest liquidation in retail history. If he regains control of Sears, he will merely continue that slow burn."
A spokesperson for the group cheered the news Wednesday that someone from ESL would not fill the CEO position.
"Current and former Sears and Kmart employees have no faith in Lampert's leadership or the leadership of anyone from ESL who have all been party to his destruction of Sears," said Lily Wang of the group Rise Up Retail. "Sears and Kmart employees kept the company going while Lampert and ESL torched it down."
The judge is trying to figure out the best way to return money to companies and people owed by Sears. The major creditors who are pushing to shut down the company are owed more than $3 billion. But Judge Drain has continually expressed concerns for the fate of the Sears' employees, whose interest is less important under bankruptcy law.
During Wednesday's hearing Saul Burian, a financial adviser for the creditors, testified that he believed that while many managers at Sears might have trouble finding a comparable job if Sears is forced out of business, most of the hourly workers would be able to eventually find a comparable job.. That analysis brought harsh questioning from Judge Drain.
"Do you know how many people live week to week on their paycheck? Do you care?" Judge Drain asked Burian.
"I do care," he responded.
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