《Kmart》.pdfVIP

KEL133 DAVID P. STOWELL Kmart, Sears, and ESL: How a Hedge Fund Became One of the World’s Largest Retailers The Unusual Weekend January 11, 2003, was the weirdest Saturday that Eddie Lampert could remember. Most Greenwich billionaires do not spend their weekends lying in bathtubs in cheap motels eating cold chicken. Unfortunately, the setting was not only odd; it was quite ominous. Lampert was fully clothed, blindfolded, and handcuffed. The previous day, Lampert, 42, had sat in his office at ESL Investments, the multibillion- dollar hedge fund he controlled. The fund’s clients included savvy institutions and famous names such as Michael Dell and David Geffen, but Lampert himself was the single largest investor. He had spent much of his time that Friday poring over documents related to Kmart’s Chapter 11 bankruptcy. Lampert had access to experienced attorneys, bankers, and accountants who specialized in restructurings, but he insisted on personally understanding every detail of the complicated swap of defaulted debt for new equity. On first glance, Lampert thought he smelled a great opportunity that rival retailers and private equity shops were missing. He had already accumulated a sizeable amount of Kmart’s defaulted debt for less than half of its face value. But before he really took the plunge and started buying larger amounts in the biggest trade of his career, he wanted to study the upside potential and downside protection in excruciating detail. After all, it was his reputation, and largely his money, on the line. Lampert discovered within hours that money and reputation are not the most serious asse