Eddie Lampert is more whaling captain than hedgie

August 29, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

A tragic figure in American literature has an analog in modern finance. Once upon a time, the billionaire investor Eddie Lampert was hailed as the next Warren Buffett. These days, his decade-plus obsession with struggling retailer Sears resembles Captain Ahab’s with Moby Dick.

Lampert was a hedge-fund star when he took discount store Kmart out of bankruptcy in 2003 and merged it with Sears two years later. A devotee of Ayn Rand and the Sage of Omaha, Lampert had parlayed $28 million of seed corn into a spot on the Forbes rich list by making savvy bets on undervalued companies.

In 2003, his growing fame attracted unwanted attention when he spent a harrowing day held captive in a roadside Days Inn after kidnappers snatched him from his Connecticut office garage. The following year he became the first hedge-fund manager to pocket $1 billion in a single year.

What Lampert once called an “enormous undertaking” to revive the onetime biggest U.S. retailer has become an increasingly forlorn pursuit, however. Sears shares have lost nearly 90 percent of their value since 2007 as the company failed to keep pace with the likes of Wal-Mart Stores, Target and online rival Amazon.

Lampert, who became chief executive in 2013 to try to right the ship, has been breaking off pieces of the business – including its Lands’ End clothing line and some of its real estate – using exit dividends and other financial tricks to boost cash. Meanwhile, Sears, the original obsession, is no longer his top holding, mainly because it has fallen so much.

Turning around a once-iconic symbol of American commerce may have been a nobler pursuit than, say, simply collecting fees of 2-and-20 percent from investors in a hedge fund. But extending another $300 million loan last week to Sears is the latest sign that Lampert just doesn’t seem able to let go of the harpoon.

As Sears’ controlling shareholder, and its captain, Lampert may have few other options but to hang on. The new loan from what remains of his investment franchise, ESL Investments, followed similar extensions of credit in April and in 2014. The extra cash should help tide the $1.5 billion retailer through the upcoming holiday season, but the medium-term prospect looks bleak.

Like the doomed Captain Ahab, Lampert should have cut loose a long time ago.

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I have watched Mr. Lampert struggle for years to bring back Sears and then K-Mart. I applaud him for his efforts to right these retail ships. I think he is going succeed because he is not afraid to do the hard things, like closing stores and selling off real estate holdings. Slimming down is sometimes necessary before you bounce back, look at McDonalds (which in 2004 was $16 or so a share and now hovers at the $100 mark) and Starbucks. Hang in there Mr. Lampert!

Posted by ChristopherC | Report as abusive