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Wednesday, November 5, 2014

Eddie Lampert And Sears Have a Weird Offering For Shareholders

When you're a public company and you need money, you can raise it in a bunch of different ways, each of which conveys a different amount of desperation. Right near the top of the desperation pile is the rights offering,1 in which you go to all your shareholders and threaten and cajole them into buying more shares by telling them that if they don't they will be diluted and the value of their stock will drop.2 In the U.S. this sort of thing is perceived as a bit shameful, so it tends to be a last resort, though it's much more common in Europe.
Here, on the other hand, is a much stranger rights offering from Sears Holdings, which is a U.S. company, albeit also sort of a Canadian one.3Sears Holdings' innovation is that its rights offering is not an offering of stock but of bonds and warrants. For every 85.1872 shares of common stock that you own, you get a right to: