The fate of Sears Holdings will be decided in a dramatic showdown that begins Monday in a federal bankruptcy court in White Plains, New York.
The retailer, which owns Sears and Kmart, is seeking approval from bankruptcy judge Robert Drain to sell itself to chairman and former CEO Eddie Lampert’s hedge fund.
Lampert – a controversial figure who is alternately credited with keeping Sears alive or blamed for its demise, depending on your perspective – has offered to keep about 400 stores open and 45,000 workers employed.
His hedge fund, ESL Investments, has valued the offer at more than $5 billion.
If Drain signs off, Sears lives on. If he rejects the deal, liquidation is virtually certain.
Critics, including the company’s major unsecured creditors and the U.S. Pension Benefit Guaranty Corp., have protested the deal.
The creditors accused Lampert of orchestrating a plot to “steal” key assets from the company as he presided over its implosion. During his tenure, the company closed more than 3,500 stores and shed 250,000 jobs, according to the creditors, who say Lampert structured loans to inappropriately benefit himself.
Lampert and ESL have defended their actions as appropriate, independently authorized and vital to keeping the company alive.
The PBGC, which will be responsible for covering the shortfall in Sears’ pension plans, said Lampert is trying to back out of deal that required Sears to use its Kenmore and DieHard brands to ease the pension deficit.
Here are five key things to watch at Monday’s hearing:
1. Does Eddie Lampert testify?
Lampert has been interviewed privately by the committee of unsecured creditors but has not appeared in public to discuss his offer. That could change during the hearing, when he may be called to the witness stand.
As an extremely private individual who rarely makes public appearances and doesn’t give many interviews, Lampert could be forced to defend his actions in open court.
2. Can the PBGC get traction?
The U.S. pension board has accused Lampert’s new deal of allowing his fund to take possession of assets that should be used to help the agency cover Sears pension payments.
Sears pensioners won’t get cuts either way. But the agency’s voice could be persuasive.
3. Will Sears or ESL offer to renegotiate if the judge doesn’t like their deal?
Lampert has already tweaked his offer at least once after his initial approach was turned down. If the judge doesn’t like the current deal, could Sears and ESL go back to the drawing board again?
It might be too late, but deals often get struck on the fly in bankruptcy court.
4. How heated will it get?
This bankruptcy has gotten emotional at times. Groups of protesters have aired their grievances over what they say is Lampert’s pillaging of Sears. And the company’s unsecured creditors are pursuing the liquidation of Sears and Kmart, but that would have the effect of putting tens of thousands of Americans out of work.
Federal judges don’t like exuberance in the courtroom. But it might be hard to avoid it here.
5. Will the drama continue?
Monday’s hearing could be extended to Wednesday if it doesn’t wrap up in time. The judge is likely to rule almost immediately after the hearing’s conclusion, but he could also decide to take more time.
The hearing will not be televised or broadcast online. USA TODAY will provide coverage.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
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