Sears Holdings Corp., which owns stakes in Sears, Kmart and Lands' End department store chains in the United States, has announced that it will sell off a large chunk of its stake in Sears Canada Inc.
On Thursday, Sears Holdings Corp. announced its first quarter results of 2012, which showed revenues decline by $270 million. It was explained that the drop was due to having fewer Kmart and Sears Full-line stores open and lower store sales at Sears Canada.
Hours after the Q1 numbers came out, Sears Holdings announced that it would be selling a considerable stake in Sears Canada, according to a news release. Its board of directors approved a procedure to undergo a partial spin-off that would see its ownership of Sears Canada fall from 95 percent to 51 percent by transferring 41.5 million shares to its stockholders.
The deal must still be approved by regulators. A date has not been announced for the transaction. The company noted that it could then have the option to sell some or its entire stake. Sears Canada will still be trading on the Toronto Stock Exchange.
“We are looking forward to working with Sears Holdings on its plan to pursue a partial spin-off of its shares in Sears Canada,” said Calvin McDonald, president and CEO of Sears Canada, in a separate press release. “While we have benefited from a close relationship with Sears Holdings, we believe this distribution would provide an increased focus on our performance as an independent company and enhance the liquidity of holders of Sears Canada's common shares.”
In an interview with the Globe and Mail, McDonald said that Sears Canada is not looking at a takeover, merger or alliance with another Canadian retailer.
During the early trading session Thursday, Sears shares were up 7.4 percent at $54.63. On Friday, it is down 1.91 percent at $51.41.
In December, Sears announced that it was closing at least 100 U.S. stores due to a lack of sales. The company has attempted to find cost savings by shutting down these stores, selling prime real estate and spinning off its subsidiaries.
North of the border, Sears has started to slash prices on approximately 5,000 items, increase its product stock and improve customer service relations. This move was compared to Wal-Mart Canada at the time.
Unfortunately for Sears, the company is facing even more competition. Target Canada is scheduled to open up 24 locations next spring in Canada with most of them being established in the Greater Toronto Area, while Wal-Mart is enhancing its line of products to compete with Target and Dollarama.