Sears Holdings Corporation (NASDAQ: SHLD) today responded to recent baseless complaints and misleading media reports orchestrated by New York-based Pershing Square Capital Management, L.P. ("Pershing") and associated U.S. speculators and risk arbitrageurs.
Sears Holdings has received a copy of a letter sent on behalf of Pershing to the Ontario Securities Commission ("the Pershing letter"), which attempts to raise questions concerning aspects of Sears Holdings' offer to acquire all the common shares of Sears Canada that Sears Holdings does not already own. Sears Holdings believes the allegations in the Pershing letter are wholly without merit.
In a transparent attempt to pressure the staff of the Ontario Securities Commission, Pershing -- and/or the other speculators and arbitrageurs acting with it -- apparently provided to the National Post the contents of the Pershing letter.
Both the Pershing letter and the interview with William Ackman of Pershing (as reported in the National Post on April 28, 2006) claim that the votes of the parties to the support agreements with Sears Holdings cannot be voted in a majority-of-the-minority vote, on the basis that such parties are allegedly acting jointly with Sears Holdings. These allegations are baseless.
Sears Holdings entered into support agreements with holders of 7.6 million common shares, including: Scotia Capital with respect to 511,000 common shares and Bank of Nova Scotia with respect to 4,000,000 common shares.
Scotia Capital was retained by Sears Holdings on January 6, 2006 to act as its financial advisor for its offer to purchase common shares of Sears Canada after a competitive process in which two other investment banks participated. Scotia Capital is not entitled to, and will not receive, a success fee on completion of the Sears Canada transaction. Scotia Capital is entitled only to routine fees such as monthly work fees, expense reimbursement and indemnification. These fees are neither contingent on the success of the Sears Holdings' offer nor material to Scotia Capital.
It is Sears Holdings' understanding that the common shares held by Scotia Capital and the Bank of Nova Scotia were acquired before Sears Holdings engaged Scotia Capital in January 2006. Moreover, Sears Holdings was unaware of such holdings both at the time it engaged Scotia Capital and at the time Sears Holdings' offer was mailed to common shareholders of Sears Canada.
All negotiations between Sears Holdings and the parties to the support agreements were conducted on an arm's-length basis, with all parties acting in their own independent economic interests. Pershing's suggestion, as reported in the National Post, that Scotia Capital and Bank of Nova Scotia were acting as Sears Holdings' agents in entering into the support agreements is false.
The Pershing complaint to the Ontario Securities Commission makes clear that Pershing has disposed of all legal and beneficial ownership in the 6.9 million shares in which it claims to have an "economic interest". However, Pershing apparently believed that its counterparties in these derivative transactions would hold or acquire 6.9 million common shares and vote them as it directed, or at least not vote them against Pershing's interests. As a result, Pershing acquired shares in the market and failed to disclose its expectation that it would be able to influence the vote of an additional 6.9 million common shares. As it turned out, Pershing's expectation was wrong.
Furthermore, Sears Holdings understands that Bank of Nova Scotia was not one of Pershing's counterparties. Bank of Nova Scotia and Scotia Capital acquired their common shares in the open market, not from swap counterparties, and have the same legal right to vote their common shares as do any other shareholders. Pershing does not have any legal or beneficial ownership of, or economic interest in, the shares held by Scotia Capital or Bank of Nova Scotia. Pershing's assertions to the contrary have created confusion in the market and misled other shareholders of Sears Canada. Pershing's only rights are to sell or tender the 5.6 million shares it owns or retain them and then dissent at the time a going-private transaction of Sears Canada is voted upon by the shareholders.
Pershing has also attempted to confuse the issue by seeking to characterize the voting of shares subject to the support agreements as a public policy concern. There is no public policy issue with the fact that these owners of shares should be able to vote their shares if they did not acquire them on behalf of Sears Holdings, which they did not.
The rules are clear with respect to the vote required to effect a going private transaction. Canada's regulatory framework provides robust protection to the minority in a going private transaction, including a valuation, a special committee recommendation, a need for the approval of the majority of the minority, and a right of appraisal for dissenting shareholders. Shareholders who do not agree with the price accepted by majority have the right to seek an appraisal for their shares; however, the "fair value" as determined by a court in an appraisal proceeding may be higher or lower than the offer made to shareholders.
"Pershing and some other U.S. speculators are seeking to hold up the acquisition of Sears Canada in an attempt to extract a premium on shares they purchased recently at prices close to the final offer price of $18 per share," said Alan Lacy, Vice-Chairman of Sears Holdings. "The purchases were essentially a speculative bet that a higher bid could be forced from Sears Holdings, based on Pershing's mistaken belief that it exercised influence over or could reacquire an additional 6.9 million shares which it had previously sold in swap transactions. The risk arbitrageurs and hedge fund investors lost that bet when a majority of the minority, including the two largest minority shareholders, accepted the Sears Holdings offer, finding it to be fair and attractive. They are now asking the Canadian regulators to change the law and bail them out of their mistake. Sears Holdings intends to defend its right to complete this transaction and we are confident that we will succeed. Sears Holdings has acted in full compliance with Canadian law and through its actions and its Offer has more than doubled the value of the Sears Canada stock price over a one year period."
About Sears Holdings Corporation
Sears Holdings Corporation is the third largest broadline retailer in North America, with approximately $55 billion in annual revenues, and with approximately 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The Company is the largest provider of home services in the U.S., with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at http://www.searsholdings.com/ .
SOURCE: Sears Holdings Corporation
CONTACT: Sears Holdings Public Relations, +1-847-286-8371
Web site: http://www.searsholdings.com/