The Morning Brief: Sears Tanks as Lampert’s ESL Hangs On

Edward Lampert’s ill-fated investment in Sears Holdings just keeps getting worse. Shares of the has-been, long-flailing retailer plunged more than 7 percent on Thursday, to their lowest price since 2003, after the company reported a 20 percent decline in revenues for the latest quarter and a bigger loss than analysts were expecting. The Hoffman Estates, Illinois-based company’s stock closed at $19 and is now down 43 percent in the calendar year alone. Lampert and his Bay Harbor Islands, Florida-based investment firm ESL Investments control more than half of the shares. This does not bode well for investors who remain in ESL’s hedge funds or who have investments still locked up in special-purpose liquidating entities. As of the end of 2014, the firm had just $3.7 billion under management in the hedge funds and special entities.
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An investor group led by New York activist hedge fund firm Barington Capital Group fired off a letter to Avon Products, calling on the beauty supplies company to undergo a major restructuring. The investors, who collectively own 3 percent of the shares, want the company to add new independent directors, cut “wasteful” expenses they believe would save $500 million to $700 million, invest some of this money in operational improvements, grow revenue and market share, maintain and grow its current dividend and “set the company on a path to recovering its position as a leading global beauty brand.”
The investors also said they oppose possible plans discussed in two separate Wall Street Journal articles whereby Avon would sell its North American business and a “dilutive equity stake” to a private equity firm. “We believe that certain key elements of a typical private equity investment have the potential to be highly beneficial to shareholders, particularly where the transaction entails the addition of new independent directors and the appointment of a new senior management team,” the letter states. However, the investor group expressed concern that the plans “could destroy significant shareholder value.”
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Barry Rosenstein’s Jana Partners cut its stake in Hertz Global Holdings to 4.9 percent. As a result, the New York hedge fund firm no longer needs to disclose when it sells more shares except when it files its quarterly U.S. equity holdings. Shares of the Oklahoma car rental giant, Jana’s fourth largest holding at the end of the third quarter, plunged 19 percent in November.
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Sandell Asset Management is once again urging Bob Evans Farms to sell its packaged foods company and retain its restaurant business. The New York activist hedge fund firm, which won its proxy fight with the Columbus, Ohio company more than a year ago and placed four of its nominees on the board of directors, asserts in a letter to the Bob Evans Farms board that Post Holdings has expressed interest in acquiring BEF Foods, the packaged foods business. Sandell estimates that BEF could fetch more than $950 million, which exceeds the entire company’s market capitalization of $855 million. “Bob Evans is being punished by maintaining combined ownership of both its Restaurant and BEF Foods business,” Thomas Sandell, chief executive officer of the hedge fund firm, states in the letter. He also urges Bob Evans to hire a new financial advisor. Sandell also implies that his firm supports the recent naming of Saed Mohseni as CEO and President, stressing his strong restaurant background.

“Our Board is focused on ways to improve performance and enhance shareholder value and will continue to review ways to accomplish these goals,” Bob Evans said in a statement, according to the Wall Street Journal. Earlier this week, the company’s board approved a $100 million increase in its stock buyback program, to $250 million, and approved a 9.7 percent quarterly dividend increase.

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