Sears’ Hometown To Become Independent Public Company and File for IPO

Sears Holdings Corporation (NASDAQ:SHLD) announced today, plans to spin off its Hometown stores, along with the hardware stores, to form a new publicly traded company. The new company will have approximately 1,200 franchised stores that sell consumer electronics, home appliances, and lawn equipments across 50 states. The spinoff is a part of Sears’ plan to revamp the brand and cut costs. The company executives said it will help company focus on its core business.
In an SEC filing Monday,  Sears Hometown & Outlet Stores said, though it will operate as an independent public company, it will still be dependent on its former parent, Sears Holdings, for key services like supply chain, accounting, and website hosting. However, Sears Holdings Corporation (NASDAQ:SHLD) will not have any ownership interest in the new company. According to the SEC filing, the new company will be listed in Nasdaq under the symbol “SHOS.”

ESL Investments, a hedge fund owned by Sears’ chairman Edward Lampert, is likely to be the majority stakeholder, with at least 62 percent shares in the new firm. ESL is also the majority shareholder in Sears Holdings, which currently owns all the shares in the hardware, home, and outlet businesses. Sears expects to raise approximately $400-$500 million in the public market by separating the businesses.

Before the spin off, Sears will draw $75-$100 million under the asset-based senior secure revolving credit facility to pay a cash dividend to Sears Holdings Corporation (NASDAQ:SHLD).

In 2011, Hometown contributed $2.6 billion of Sears’ $41 billion in revenue, and earned a profit of $33.1 million. In 2010, Hometown profits were $49.8 million. In the beginning of this year, Sears had to shut down one outlet, five Hometown stores, and eight hardware stores.

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Sears is going to report its second-quarter earnings on Thursday. Analysts expect it to incur a loss of 86 cents, on sales of $9.63 billion. Sears’ turnover has been constantly declining for the past five years. The other retailers are also struggling for survival. Last week, J.C. Penney Company, Inc. (NYSE:JCP) reported a loss of $147 million and its sales declined 23 percent year-on-year.

Stocks of Sears jumped 5.3% to $54.12 upon the news of spin off on Monday.