As part of some work on Activist Strategy database buildout, featuring Pershing Square and its activist performance, here's a look at their involvement in Sears.
Pershing Square started purchasing the common stock of Sears Roebuck & Company in June 2004. In addition to purchasing Sears common stock for its own account, Pershing Square approached Vornado Realty Trust real estate investment company, to induce it to consider a potential strategic transaction with Sears. In that connection, Pershing Square began working with Vornado and purchased an equity stake in Sears for Vornado’s account as well, together acquiring a 4.9% economic stake through total return swaps, shares and options in the company.
On November 5, 2004, Vornado announced that it had acquired an approximately 4.3% economic interest in Sears. Following this announcement, the price of Sears common stock rose approximately 21% over the prior trading day’s closing price.
On November 17, 2004, Sears and Kmart Holding Corp. (which we refer to as Kmart) entered into a merger agreement to combine the two companies. Shareholders of Sears were given the option to elect to receive either $50.00 in cash or 0.5 of a share of the common stock for the combined company for each share of Sears common stock, representing a 36.5% premium to the trading price of Sears common stock on the day prior to Vornado’s announcement.
As outlined in the Registration Statement of Form S-4 filed by Sears and Kmart in connection with their merger, “as a result of Vornado’s announcement and other concerns including maintaining confidentiality of the discussions, Sears and Kmart decided to accelerate the timeframe for implementing the proposed business combination to minimize the period during which speculation or additional price volatility could impair the parties’ ability to reach an agreement on financial terms.” Pershing Square believes that its involvement enhanced both the speed and certainty of the merger between Sears and Kmart, hence contributed to the value creation for shareholders of Sears.
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