Game On

By Jennifer Marks -- Home Textiles Today, 4/23/2007 12:00:00 AM

For those who enjoy playing the game What In The World is Eddie Lampert Up to Now?, the chairman of Sears Holdings continues to mesmerize the hedge fund community and mystify we pedestrian folk.

Lampert's latest move was to transfer ownership of Sears Holdings' brands to a company-owned subsidy in the Bermudas. That entity, KCD IP (Kenmore Craftsman DieHard Intellectual Property), subsequently issued $1.8 billion in bonds using the intellectual property of the brands themselves to back them up.

According to the seers at Value Plays online — which certainly understands more about this stuff than I do -- Sears now pays royalty fees to license its own brands from KCD IP, which uses the royalties to pay the interest on the bonds.

Which is where things get interesting.

Value Plays lays out four scenarios that could follow from the transaction and would redound to the financial benefit of Sears Holdings' shareholders, particularly shareholder-in-chief Lampert.

• Sell the bonds. That would put $1.8 billion in cash into Sears' pocket and chuck the ownership of the bonds onto the buyers.

• License the brands. The Craftsman, Kenmore, and Diehard labels could surely extend into other product categories — and probably expand into more skus within existing product categories. Value Plays asserts that royalties would amount to "virtually 100% profit for Sears."

• Swap bonds for debt. That's how Lampert acquired Kmart. He's made no secret of the fact that he's empire-building in the manner of Berkshire Hathaway. Swapping bonds for debt could bulk up the company in one fell swoop — without tapping a penny of Sears' cash.

• Jump into the insurance industry. The Bermudan Sears entity now in possession of the company's brands is an insurance business. If Lampert intends to follow the Berkshire Hathaway model — a goal he has expressed publicly on more than one occasion — he's not going to do it by plying only the retail business.

Nowhere in any of this will you find the answer to the question most on the mind of home textiles suppliers and Sears Holdings' retail competitors: So does this mean Lampert is concerned about rebuilding the Sears and Kmart businesses or no?

Deals like this lead me to believe the answer is: Not so much.

But he's probably having a lot more fun.