Sears Canada getting milked dry

Oct 6th, 2010 – Comment

It’s clear that Lampert will squeeze this pip until it squeaks. If you think that getting a return of capital through a special dividend is worth the loss of capital as the stock declines then fill you boots.


About the Author

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


Read the author's full profile.


Further Research

Read more about Retail.


 

Hi Lou,

Could you give me your thoughts on Sears Canada. The company has recently issued 2 special dividends at $3.50 each time and the shares have dropped by $7.00.The company still has another $300M in cash and will the company declare another special dividend? Is the parent company Sears Holding doing this to bring the share price down and then take out the remaining 10% shares.

Thanks,

Lou

Hi Lou,

Thanks for the assignment. Sears Canada, Inc. ( SCC TSX) now has one future and that is to produce cash for its parent company. Sears Holdings Corp. (SHLD NASDAQ) is under the control of financier Eddie Lampert who consolidated Sears and Kmart with the intent of stripping the cash out of them  and using it to invest in other companies. It is the same strategy that Warren Buffett used by taking control of Berkshire Hathaway Inc.( BRK.A NYSE) and turning it into an investment management enterprise. The question is will Lampert do as well as Buffett.

The three year chart tells the tale of Lampert’s efforts since merging Sears and Kmart five years ago. All the expectations of how things would unfold as a vehicle for investment didn’t quite come to fruition as the Great Recession had everyone including Lampert playing a different game called hang on to the wheel she’s headed for the ditch!

There is a definite double top on the chart that appeared in the March – April period of 2010.  A double top is a reversal pattern that provided a warning that the advance from the November 2008 lows was at risk. The downtrend is now firmly in place and what has to be asked is what could possibly move this stock higher?

The six month chart again depicts the story of a stock in a steep decline with no indications that it has found support for a rebound. It’s clear that Lampert will squeeze this pip until it squeaks. If you  think that getting a return of capital through a special dividend is worth the loss of capital as the stock declines then fill you boots. For my money it doesn’t make sense to get into a game where the business model was based on assumptions that have not quite worked out regardless of a possible offer to the minority shareholders.

Happy Capitalism.

Categories: Retail
Content © Relentless Economics - Charts courtesy Stockcharts.com - Employees Entrance - Optimization Media