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Breaking Up the Party: Vornado Said Eyeing Possible Bid for Sears

Vornado Realty Trust could be close to upping the stakes in the bidding for Sears, sources in the retail real estate and finance community said Friday

The spokesman declined to comment when asked whether the Sears board had received bids from other interested parties.

“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.”
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