Author Topic: SHLD - Sears  (Read 2273602 times)

ERICOPOLY

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Re: SHLD - Sears
« Reply #20 on: December 02, 2012, 09:45:24 PM »
Eric-  This is what I recall from reading Snowball.

In the early days of Berkshire Buffett used part of the cash he squeezed out of the textile business to repurchase shares.  Buffett first invested in Berkshire in 1962 and assumed control in 1965.  From 1962 to 1975 Berkshire reduced its shares outstanding from about 1.6 million to slightly under 1 million.  Many of the shares were repurchased from Buffett's previous partners.  Warren gave them enough information about the business, but just enough. 

 

Okay, I got that part wrong.

As for the other half, what businesses has Eddie bought for diversifying the earnings streams of ESL?  None.


wisdom

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Re: SHLD - Sears
« Reply #21 on: December 02, 2012, 09:56:13 PM »
Eric - it could be worthwhile looking at how he has structured SHLD - 6 different areas of business eg: home services, real estate, etc. One could interpret it as different subsidiaries.

You also have Sears Canada, potential global expansion of sears.com (some of it is already happening), etc.

wisdom

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Re: SHLD - Sears
« Reply #22 on: December 02, 2012, 10:06:35 PM »
compounding life - you are right - sales tax on online sales is not something that SHLD thesis depends on. I have tried to list things that could work in the same direction - build momentum.

rimm - it is easy to say that the share purchases were bad use of capital in hindsight. At that point in time it could have been the best decision. Today it might be buying back the debt.

The rights offer also speaks to the flexibility he has if an error is made - I believe the large margin of safety allows him more room for error. I do not expect EL to be perfect in every decision.

ERICOPOLY

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Re: SHLD - Sears
« Reply #23 on: December 02, 2012, 10:06:54 PM »
Eric - it could be worthwhile looking at how he has structured SHLD - 6 different areas of business eg: home services, real estate, etc. One could interpret it as different subsidiaries.

You also have Sears Canada, potential global expansion of sears.com (some of it is already happening), etc.

ESL is the Berkshire.  Not SHLD.

ESL has passive investments.  ESL has operating companies (via SHLD).

Buffett had all passive investments and operating companies done via Berkshire.

wisdom

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Re: SHLD - Sears
« Reply #24 on: December 02, 2012, 10:14:55 PM »
Eric - I am not saying SHLD is like BRK. This is why i used - IF SHLD is EL's BRK.

It could be one of the outcomes depending on how things play out.

Would ESL provide permanent capital? The %age of ownership that EL now has in SHLD keeps moving up.

ERICOPOLY

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Re: SHLD - Sears
« Reply #25 on: December 02, 2012, 10:21:26 PM »
Never say never I suppose.

Perhaps he'll manage money virtually for free via SHLD thus effectively losing the ESL fees.  A hedge fund manager that no longer wants to make money off of his partners' money is a rare breed.



FCharlie

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Re: SHLD - Sears
« Reply #27 on: December 03, 2012, 04:18:44 AM »
I just noticed a new SEC filing for SHLD effective Nov 30, 2012.  From my reading ESL (Eddie's hedge funds) has wound up one of its partnerships and distributed 5.9m of SHLD to its limited partners.  It will be interesting to see if Eddie has taken his management fees in SHLD shares.  In January and July of this year ESL wound up two partnerships that it specifically set up for the Ziff brothers.  Eddie ended up with all those shares (about 6 to 7 million) either through fees or through purchases. 

SHLD may have been sold off last week in anticipation of the limited partners' shares hitting the market.


Eddie also distributed shares of AutoNation to partners.

At the end of the day, distributing shares shouldn't matter. Eddie himself hasn't sold. Bruce Berkowitz hasn't either. They are the reasons most of us are here.

The stock is down almost 40% in the past three weeks. Wow.



bmichaud

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Re: SHLD - Sears
« Reply #28 on: December 03, 2012, 05:27:54 AM »
What are the odds of permanent loss by owning SHLD? With the kind of balance sheet, assets SHLD has - how can it go into bankruptcy?

I have been unable to come up with many scenarios where that can happen. Especially, at the holding company level - the odds of bankruptcy are extremely remote.

A large part of its sales/services are directly linked to the housing market. Yet, is has survived the worst crash in living memory in housing with a strong balance sheet. In fact, it has continued to contribute to its pension plan, paid down debt and bought a lot of shares through this period. i.e in a lot of ways the balancesheet is better today. Having survived the slow down alone insures that they will do well when consumer spending comes back and the housing market get better.

I do not think the management at SHLD has been as bad as most people claim. Look at Home Depot, Best Buy and other retailers like JCP over the last 4 years. SHLD's drop in sales is similar - could the real reason for it be the slow down in housing and lower consumer spending rather than the management. Something to consider.

It is also a play on commercial real estate with low cost real estate or low rents locked in.

SHLD's strong balancesheet allows EL to play the waiting game (similar to Watsa or Buffett):
- housing is already making a come back which should lead to higher sales, thus, cashflow should start improving.

- malls are getting busier, thus, making commercial real estate more valuable. If we get inflation at some point in the future and real estate prices/rentals make a come back - SHLD would be one of the largest beneficiary's as it controls a large commercial real estate portfolio.

- in a high inflation scenario SHLD also benefits with its low locked in rents, etc. while revenues should rise with inflation.

- in a delationary scenario - SHLD has limited debt compared to some other retailers, low rents, has contributed heavily to its pension plan, a fair amount of cash and flexible B/S.

- If SHLD is EL's BRK - he already has 6 different businesses within SHLD - BRK only had textiles in the beginning. The share buybacks reming me of what Singleton (Teledyne) did during tough times in the market.

- Online retailers have enjoyed an advantage over brick and mortar companies - no sales taxes. Online retailers will start paying sales taxes as governments look for more revenue. Most brick and mortar stores with a large online presence stand to benefit. The advantage that Amazon has enjoyed will be reduced and a lot of these sales could come back to large retailers with both an online and a physical presence. 

$40B in annual sales
Even at EBITDA of 5% on $40B in sales (or $2B) SHLD will do well purchased at current prices with no increase in sales.

Thus, the question is - $42/share - is this a reasonable price to pay. I think so and I am prepared to wait.

except his balance sheet is not that strong. his debt ratings are not good and the bonds trade below par. I own some sears bonds that trade at $12, down from $18-$19. finance 101. if your bonds trade below par buy them in before you buy back your stock. he also has big issues with underfunded pension.  3 years ago you could make your argument. but things have gone south in a big way. when you are losing money your balance sheet can go south in a hurry. that's what's happened. that's why he did the rights offering. to raise cash. his share buybacks were terrible uses of cash in hindsight. not like Singleton at all.

Is it possible that "RIMM never sleeps" is the reincarnation of Peter Burke CEO? Owning SHLD bonds made me pause....the calling card of Burke was consistent RIMM bashing, and I distinctly remember him hinting at picking up SHLD debt earlier this year or late last year when SHLD was under some stress.  Just throwing it out there.

BargainValueHunter

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Re: SHLD - Sears
« Reply #29 on: December 03, 2012, 05:38:19 AM »
Can anyone shed some light on some of Eddie Lampert's previous investing/ asset allocation mistakes and failures?

He seems to have a rather impressive track record.
« Last Edit: December 03, 2012, 10:46:05 AM by BargainValueHunter »
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