Sears' $900M sale of Craftsman to Stanley Black & Decker 'voidable'?
Sears Holdings warned that the recently announced sale of its Craftsman tool brand could fall apart if the ailing department-store chain goes broke by the time the deal is ready to close.
The company said in a public filing Tuesday that the sale of Craftsman to Stanley Black & Decker could be "voidable, in whole or in part" if a court determines that Sears was insolvent at the time of the deal close or became insolvent because of it, among other conditions.
Sears said in the same filing that there's "substantial doubt" about its ability to stay afloat. Sears, in a blog post Wednesday on its site, said that it was required to make the disclosure on its site because of "historical performance," but that it is not in imminent danger of going out of business as it executes its turnaround strategy.
The Craftsman sale, a deal valued at about $900 million, was announced in January and completed March 9.
Other recent transactions, including Sears' 2014 spin-off of retail chain Lands' End, could also be unraveled if the company is deemed to have been insolvent at the time, Sears warned.
The warnings stem from laws that require bankruptcy judges to examine recent transactions in which debtors shed assets to determine whether those deals unfairly extracted value that otherwise would have gone to senior creditors.
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If the deals were deemed to violate "fraudulent conveyance and transfer laws and legal capital requirements," the buyers of Sears assets could be required "to turn over value to other entities involved in the transaction and contemplated transactions for the benefit of unpaid creditors," Sears said in the filing.
A Stanley Black & Decker spokesperson did not respond to a request seeking comment Wednesday morning. But the company was aware of the possibility that its acquisition of the Craftsman brand could be accused of being a fraudulent conveyance.
"That would only be an issue for us if it were determined at some point that when they entered into the agreement that they were, in fact, illiquid or insolvent, and we don't believe that's the case based on everything that we know at this point in time," Stanley Black & Decker CEO James Loree told investors in a call in January. "So this has been a challenging transaction from the standpoint of risk management. We've had excellent, excellent legal support and we think we're in a very good place."
Another possible risk to Stanley Black & Decker is that it could be stuck with Craftsman warranty expenses or claims if Sears dissolves.
"We're not contractually obligated in that regard" but "we might take the position that for good commercial sense, we would cover those," Loree said, estimating the potential expense at up to $10 million per year.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.