New York, December 7-- Smith Barney said on Monday that Vornado Realty Trust could team with a private equity firm or retailer to bid for Sears, scuttling the department store's $10.6 billion planned purchase by Kmart.
"We do not believe the Sears/Kmart merger is a done deal just yet," Smith Barney analyst Jonathan Litt said in a research report.
Vornado could seek a partner for a joint bid or another dark-horse suitor could emerge for the retailer, which has struggled to compete against discounters like Wal-Mart Stores Inc. and Target Corp. Still the Sears-Kmart deal carriers a $400 million break-up fee that may inhibit other bids, Litt said.
The current agreement with Kmart values Sears at roughly $10.6 billion, or $51 a share. Sears' stock has traded above that price since the deal was announced last month, suggesting investors think another bid could be in the offing, traders said.
"The stock is behaving like there's something else out there, but it's hard to do the math and find an obvious partner who would want to pay more," said one trader who specializes in takeover stocks.
Shares of Sears gained 98 cents, or 1.9 percent, to close at $53.28. Shares of Kmart added 25 cents to close at $104.21, while Vornado's stock added 70 cents to close at $74.70.
Kmart declined to comment and Sears could not immediately be reached for comment. Vornado, which last month bought a 4.3 percent stake in Sears, also could not be immediately reached for comment.
Litt suggested the total value of Sears' real estate, as well as the potential value of expanding distribution of its Craftsman tool and Kenmore appliance brands, could make the company worth as much as $17 billion, or $80 a share.
"If Vornado prevails in a bid for Sears, it will likely look over-priced and may weigh on the shares. However, given management's track record, we do not believe they would proceed unless they saw significant long-term upside," Litt said.
The brokerage said it believes the real estate holdings of Sears', which operates 1,971 stores, could be worth as much as $8 billion to $10 billion, up from its previous estimate of $4 billion to $6 billion.
Vornado, however, may be smarter to avoid a difficult battle to wrest control of Sears and instead enjoy the gains it has made on its newly acquired stake in the company, Litt said.
Sears is not the first retailer Paramus, New Jersey-based Vornado has eyed this year. Vornado made a failed bid for Mervyns and is expected to bid in Toys R Us Inc.'s auction of its floundering toy business.
Media reports have said Vornado may partner with private equity firm Bain Capital, while Kimco Realty may team with Cerberus Capital Management to submit bids for Toys R Us.
"We would not be surprised to see a similar lineup of real estate operators and private equity players teaming up to bid for Sears," Litt said.
