Kmart, Sears and ESL: How a Hedge Fund became one of the World’s Largest Retailers

877 Words Nov 12th, 2013 4 Pages
1. Describe recent trends in the hedge fund and private equity industry and the growing overlap between the two.

- The line between some types of hedge funds and private equity LBO funds are being blurred in recent times. But most hedge fund strategies are still quite distinct from the LBO investing model.

- In the early year’s hedge funds active in the LBO arena would try to buy defaulted or near default bonds and then resell them in weeks or months later at a profit. But in recent times hedge funds have started to hang onto the distressed investments through the whole bankruptcy process, leaving them with substantial and sometimes controlling stakes in the companies. When the companies come out of bankruptcy the hedge funds claims
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Could Sears have succeeded as a standalone retailer?

- Sears strategy for decades was based in malls, but after seeing the increasing sales of its competitor’s stand-alone “big box” retail model. Soon after Sear’s management started experimenting with an “off-mall” concept called Sears Grand. Sears experiment was successful and management wanted to roll out the off-mall Sears Grand concept nationwide at a fast pace and the same time Kmart wanted to sell fifty Kmart locations. The deal created significant values for both companies. This really got the wheels turning for both management teams for a possible merger.

- Yes, I do think Sears could have succeeded as standalone retailer, but it would have much more difficult without the merger. Sears would have expended a larger amount of cash to acquire or build new locations, thus increasing its leverage. Also By entering the stand-alone big box retail market for the first time, they would be exposing themselves to large competitors like Wal-Mart and Target, which was one main reason for the Kmart bankruptcy.

4. Evaluate Lampert’s strategy and the benefits for Sears’s shareholders.

- Lampert’s strategy was to convert some Kmart stores into Sears and bringing Sears products into Kmart stores, reduce marketing costs, lowering COGS, lowering SG&A through synergy opportunities, increasing per square foot sales for Kmart, and also monetize and nonproductive assets.

- Sears’s shareholders gain many benefits from

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