In July 2017, I interviewed hedge-fund manager Eddie Lampert at his mansion overlooking Long Island Sound. Ever since Lampert was kidnapped from his Greenwich, Connecticut, office parking garage, in January 2003—he managed to escape from the $49-a-night motel room and his bungling kidnappers after 28 brutal hours—he has been understandably reluctant to appear in public or speak to the media. Ours was his first extended conversation with a journalist in about 15 years.
At the time, Lampert was the C.E.O. of Sears Holdings, the company that then owned Sears and Kmart, and the chairman of its board of directors, which had also included Steve Mnuchin, Lampert’s roommate at Yale and later Donald Trump’s secretary of the Treasury. Lampert, a Wall Street wunderkind who made his billions investing in the likes of AutoZone, AutoNation, Honeywell, Liz Claiborne, and Saatchi & Saatchi, had bought the distressed bonds of Kmart in 2003—shortly before his kidnapping—and then used the bankruptcy process to turn them into a majority-ownership stake in the discount retailer. Two years later, Lampert merged Kmart with Sears to create Sears Holdings. It’s been an unmitigated disaster since then.
In the four years between Lampert’s becoming the C.E.O. of Sears Holdings, in 2013, and our interview, the number of Sears and Kmart stores nationwide had shrunk to 1,207—down from 5,670 at its peak in the 2000s—and at least 200,000 Sears and Kmart employees had lost their jobs. At the time of our interview, Sears Holdings was fighting for its life as a viable company. Even Lampert seemed unsure of his various feats of financial engineering, which were designed to pull the company out of its existential tailspin. “There are a lot of decisions made over a long period of time, including by me, that may not have been always the best decisions,” he told me.
Lampert had tried every trick in the book to stave off what appeared to everyone to be an eventual bankruptcy filing. He had sold Sears’s line of Craftsmen tools to Stanley Black & Decker for around $900 million. He had created a real-estate-investment trust, Seritage Growth Properties, spun it off from Sears Holdings, and sold it 235 Sears and Kmart stores, generating some $2.7 billion in proceeds for Sears Holdings. He had spun off Lands’ End, Sears Hometown and Outlet Stores, Sears Canada, and Orchard Supply into their own independent publicly traded companies. Through his hedge fund, he had made some $2.4 billion of secured financing available to Sears Holdings to try to keep it afloat. He had announced the closing of even more stores. “We’re fighting to survive—that’s pretty clear,” he told me.
Lampert Just Won’t Quit
None of it worked. On October 15, 2018, Sears Holdings filed for bankruptcy protection and Lampert resigned as C.E.O. That should have been the end of Eddie Lampert’s involvement with Sears. Or, at least, that’s usually the way it goes in bankruptcy. But Lampert, now 60 years old, had bet the farm on his ability to make Sears and Kmart competitive with Walmart, Home Depot, Lowe’s, and Amazon and just couldn’t quit.
Some two months later, Lampert was back, trying to buy all of Sears Holdings’ assets, including some 500 remaining retail stores—down from the 1,207 stores at the time of our interview—and the headquarters in Chicago, which Lampert rarely visited when he was C.E.O.
His bid made it seem like he had only a minimal role in Sears’s sorry undoing. “Sears is an iconic fixture in American retail and we continue to believe in the company’s immense potential to evolve and operate profitably as a going concern with a new capitalization and organizational structure,” he wrote to the debtor’s investment bankers at Lazard in December 2018.
He also laid on thick the promise that he would save thousands of jobs, neglecting to mention that he had been responsible for destroying hundreds of thousands of them in the first place. He pledged to retain about 50,000 Sears employees and to reinstate Sears’s severance program for eligible employees. He also wrote that he would honor gift cards and warranties for customers.
Best of all, at least from Lampert’s perspective, was that he wasn’t planning on paying a dime for any of this. Through an acquisition company aptly named Transformco, he made what is known on Wall Street as a “credit bid” for the Sears assets. Essentially, he was offering to forgive his still outstanding $1.8 billion in secured loans to the debtor in exchange for the assets. He also asked for a “full release” from any liability related to any pre-bankruptcy transactions he and his hedge fund were responsible for. And, almost as an aside, he mentioned that Transformco also wanted Sears Holdings’ “tax assets,” the amount and usefulness of which Lampert did not quantify.
Over the next several months, negotiations between Lampert and the debtor continued, complete with a letter from Lampert threatening legal action against Sears Holdings for breaching its fiduciary duty because the debtor had rejected several of Lampert’s offers. There was also an accusation from the unsecured creditors that Lampert’s offer was “a scheme to rob Sears and its creditors of assets.”
In February 2019, the bankruptcy judge approved the sale of 425 Sears Holdings stores—223 Sears stores and 202 Kmart stores—to Transformco with a new headline price of $5.2 billion. As part of the deal, Lampert obtained Sears Holdings’ “tax assets,” but he was not released from lawsuits against him and his hedge fund for any of the financial jujitsu he engaged in before the bankruptcy filing.
In an interview with me, one former creditor articulated what many people have wondered about Eddie Lampert and Sears: “Why did he want to own this piece of crap?”
A big part of the reason was Sears Holdings’ “tax assets,” which Lampert referred to only obliquely in his bid for the company. It turns out that, according to Robert Willens, a longtime Wall Street tax expert and professor at Columbia Business School, Lampert’s hedge fund now has pretty much unrestricted use of $5 billion in Sears’s net operating losses and $1 billion in Sears’s tax credits, because he agreed to buy the 425 stores and try—whatever that means—to run them as an operating business for at least three years. (I was hoping that Willens would elaborate on Lampert’s tax bonanza, but he did not respond to my calls and e-mails requesting an interview. Nor did Lampert or Scott Carr, the president of real estate at Transformco.)
Regardless of how Lampert intends to use these massive unlimited tax losses, he wasted little time in transforming Transformco. In June 2019, the company bought the 42 percent of Sears Hometown and Outlet Stores Inc.—the portion that it didn’t already own—for about $21 million, re-uniting with Sears the 600 or so Sears outlet stores that Lampert had sold off years before. In December 2019, Lampert licensed DieHard, Sears’s battery brand, to Advance Auto Parts for $200 million. Then, in March 2020, just before the pandemic hit, Transformco sold Sears’s logistics business, Innovel Solutions, to Costco for $1 billion.
Transformco has also been very busy liquidating many of the 425 Sears and Kmart stores he told the judge he would keep open and try to run as going concerns, preserving jobs along the way. According to Transformco’s Web site, out of the 425 Sears and Kmart stores Lampert bought out of bankruptcy, around 40 are still operating. All the rest have been sold or are for sale.
“There are a lot of decisions made over a long period of time, including by me, that may not have been always the best decisions.”
Meanwhile, Sears Hometown, which Lampert bought and took private in June 2019, filed for bankruptcy protection in December of last year. There are roughly 120 Sears Hometown stores still in operation, down from about 500 when Lampert bought the business. And a $2 billion lawsuit brought against Lampert and his other investors in 2019 by Sears Holdings’ creditors, accusing them of “thefts of assets” and “rank self-dealing,” was settled last August for $175 million, most of which Lampert’s insurance covered. About $42 million of the settlement came from Lampert and other Sears Holdings insiders.
Seritage Growth Properties, which once owned 266 Sears Holdings properties and was roughly 30 percent owned by Lampert, is liquidating its remaining holdings, as of last October, in part to pay off a $1.4 billion loan from Warren Buffett’s Berkshire Hathaway. (Lampert has stepped down from the board of Seritage as part of the liquidation and has said he might bid on some of the properties being sold.)
After 20 years of fooling around with Sears and Kmart and running them both into the ground—hurting shareholders, creditors, and landlords in the process—did Eddie Lampert make any money? The creditor, who told me he lost everything his fund had invested in Sears Holdings, thinks Lampert has recouped about $2 billion of his $2.5 billion outlay so far. But Lampert still has a bunch of unsold properties and stores in operation, plus the valuable tax asset, if he can find a way to use it. In other words, Lampert will likely more or less break even when all is said and done, and then have the big tax shelter to use. “I don’t think he lost a lot of money,” the creditor told me. “Obviously, he lost a lot of opportunity cost by dicking around with this for 12 years.”
Wall Street wonders what Lampert will do next. At the moment, he seems to have shuttered his hedge fund, ESL Investments, Inc. Some people reject the idea that he has a grand plan for the tax losses that he obtained, because he doesn’t really have any gains to shelter now. He still owns about 12.4 percent of AutoNation, worth around $1 billion, after selling down from a 15.5 percent ownership position in October, so he could theoretically use his Sears Holdings tax losses to shelter these gains and avoid paying taxes. The former Sears Holdings creditor also thinks Lampert is in “an advantageous position” to buy any company he wants and “basically get 100 percent of the net earnings to pay taxes forever.”
It’s hard to figure out, though, exactly why Lampert mismanaged Sears Holdings so badly. “There’s not a lot of closure for people that were close to it,” the creditor continued. “Why did he have to have it in bankruptcy so bad? What’s his endgame? Has it just been a catastrophe and it is what it appears? Or is there a bigger endgame?”
Or is it just Eddie Lampert doing what he’s always done: wheeling and dealing below the radar, hoping people will finally get how smart he really is?
When I interviewed Lampert back in the summer of 2017, he indicated he had no plans to slow down, much less give in. “I’m going to do business, whatever business means, for the rest of my life…. I feel like I can make a contribution by being involved.” With that, Lampert simultaneously revealed something his critics have always suspected and provided the answer to why he’d bungled the Sears Holdings ordeal: after all these years, Lampert still hasn’t figured out what “business” means.
William D. Cohan is a Writer at Large for AIR MAIL and the author of such best-selling books as The Last Tycoons, House of Cards, and The Price of Silence. He is a founding partner of Puck. His new book, Power Failure, is out now
