Toronto, Ontario, April 18, 2006--A group of Sears Canada minority shareholders said they will band together to fight Sears Holdings' bid to buy out its Canadian unit for C$892 million ($775 million).
Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP said they have formed a group to oppose Sears Holdings' "coercive tactics to force the minority shareholders of Sears Canada to tender into an undervalued and unsupported offer".
The group said it has a total economic interest of about 14.1 percent of Sears Canada's outstanding common shares.
Sears Holdings, which has long held a majority stake in Sears Canada, originally offered to buy the remainder for C$16.86 per share.
The offer was rebuffed by Sears Canada's board in February after a valuation by Genuity Capital Markets put the Canadian retailer's worth at C$19.00 to C$22.25 a share.
The owner of Sears and Kmart stores sweetened its bid to C$18 a share earlier this month, and declared victory three days later after gaining the support of most of the minority shareholders of Sears Canada to take the retailer private.
But the dissenting group warned on Monday it will take "all appropriate legal action" to halt the transaction, "or, alternatively, to ensure that those shareholders who desire to sell their shares in Sears Canada are treated fairly".
The group also urged shareholders who had tendered into Sears Holdings' bid to withdraw their shares from the offer.
Among legal options, investors opposed to the deal could seek "oppression remedy," asking the court to decide that a company's actions are oppressive to shareholders. They could also ask the court to determine the fair value of the shares, known as "appraisal rights."
Ron Mayers, head of alternative strategies at Desjardins Securities, which owns shares of Sears Canada, said the size of the stake owned by dissenting shareholders would not matter in a lawsuit.
"Whatever the lawsuit discovers would have the same impact if it's a shareholder with 10 shares who is suing, or if it's one that owns 10 million shares," Mayers said.
Pershing, which owns about 5.2 percent of Sears Canada's outstanding common stock, and is entitled to the economic benefit of an additional 6.4 percent through derivative transactions, rejected Sears Holdings' bid as "wholly inadequate."
The hedge fund, managed by William Ackman, has pushed for sweeping changes at a number of companies, including Wendy's International Inc., and McDonald's Corp.
But Sears Holdings warned efforts to derail the bid would be unsuccessful because, with the backing of most of the minority shareholders, it has the power to force the deal.
Sears Holdings has said it has commitments for an aggregate of 25.3 million shares, representing more than 50 percent of the shares owned by minority shareholders.
