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“We’re making good progress as we go forward, but we still have a few hurdles to cross,” he added, referring to shareholder approval and integration of the two companies. “We think there’s a compelling business case for it [the combination of Sears and Kmart].”
That may not stop Vornado. Sources said Vornado lost out on a bid for the Mervyn’s division of Target Corp. last year when another group of financial investors bought it and has been eager to make a retail deal since.
Vornado certainly faces hurdles in making a higher Sears bid, even if it finds a financial partner. As a practical matter, it generally is hard to make a bid for a company once a merger agreement is in place since those deals generally place restrictions on discussions with other parties.
“It may be tough for him [Roth] to get in when the Kmart-Sears deal is supposed to close in a month and it has already gotten antitrust clearance,” one real estate source said.
Others, however, weren’t prepared to count Vornado out, even at this late stage.
“Roth is a very clever guy,” a real estate source specializing in the department store sector said. “He is a long-term player. He tried to go after Mervyn’s because he wanted the real estate, but lost out on that one. Sears would be a significantly bigger deal.”
In a research report from Dec. 17, Citigroup Global Markets REIT analyst Jonathan Litt wrote, “We do not believe the Sears-Kmart merger is a done deal just yet. We think Vornado could team up with a private equity partner or another retailer to bid for Sears.”
Litt didn’t rule out the possibility that another “dark-horse bidder may still emerge,” given the apparent value in Sears’ shares. He wrote that his analysis suggests a real estate value of Sears at between “$8 billion and $10 billion,” versus his prior estimate of “$4 billion to $6 billion.”
He added, “We have also refined our analysis of the Craftsman and Kenmore brands, and we now estimate Sears’ total value could be $15 billion to $17 billion, or $70 to $80 per share.”