Sears (SHLD) Approves Rights Offering in Separation of Hometown, Outlet Stores

August 29, 2012 6:40 AM EDT
Sears Holdings Corporation (Nasdaq: SHLD) has approved the rights offering transaction pursuant to which Sears Holdings intends to effect the separation of its Sears Hometown and Outlet Stores, Inc. subsidiary.

Sears Holdings will distribute transferable subscription rights to purchase common stock of Sears Hometown on a pro rata basis to holders of Sears Holdings common stock, except that holders of Sears Holdings' restricted stock that is unvested as of the record date will receive cash awards in lieu of subscription rights. The cash awards granted to holders of Sears Holdings restricted stock will be subject to vesting requirements.

The distribution will be made to Sears Holdings' stockholders of record as of the close of business on September 7, 2012, the record date for the distribution. The date of the actual distribution of the subscription rights is expected to be set by the board of directors prior to the record date.

In the distribution, Sears Holdings stockholders will receive one transferable subscription right for each share of Sears Holdings common stock held as of the close of business on the record date. The number of subscription rights that will be required to purchase a share of Sears Hometown common stock from Sears Holdings is expected to be determined on the record date by dividing the number of shares of Sears Hometown common stock then outstanding by the number of shares of Sears Holdings' common stock then outstanding (less the number of shares of Sears Holdings' unvested restricted stock). Fractional shares or cash in lieu of fractional shares will not be issued in the rights offering. Instead, fractional shares resulting from the exercise of subscription rights will be eliminated by rounding down to the nearest whole share.

The exercise price of the subscription rights will be $15.00 per whole share of Sears Hometown.

Additionally, holders of subscription rights who fully exercise all of their subscription rights may also make a request to purchase additional shares of Sears Hometown common stock, through the exercise of the over-subscription privilege, although we cannot assure that any over-subscriptions will be filled. The subscription rights are transferable and are expected to be listed on the NASDAQ Capital Market under the symbol "SHOSR."

Following the separation, Sears Holdings will continue to be listed on the NASDAQ Global Select Market under the symbol "SHLD," while Sears Hometown expects to list its common stock on the NASDAQ Capital Market under the symbol "SHOS." We expect that from a date determined by NASDAQ through the distribution date, there will be two markets in Sears Holdings common stock: a "regular-way" market and an "ex-distribution" market. Sears Holdings common stock that trades on the regular-way market will trade with an entitlement to subscription rights on the distribution date. Shares that trade on the ex-distribution market will trade without an entitlement to subscription rights on the distribution date.

The separation is subject to the satisfaction or waiver of a number of conditions described in Sears Hometown's registration statement. If the conditions are met in accordance with the timing currently contemplated, we continue to expect that the consummation of the rights offering will take place in the third quarter of fiscal 2012. Assuming the subscription rights are exercised in full, upon completion of the separation, Sears Holdings will cease to have any ownership interest in Sears Hometown, and Sears Hometown will become a publicly traded company independent of Sears Holdings.

As part of the separation transactions, Sears Hometown expects to enter into an asset-based senior secured revolving credit facility with a group of financial institutions to provide (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million. Sears Hometown currently expects to draw $100 million under this facility to pay a cash dividend to Sears Holdings prior to its separation from Sears Holdings which will constitute a portion of the $446.5 million in anticipated gross proceeds to Sears Holdings from the separation transactions.

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