Transform Holdco, a leading integrated retailer and home to Sears and Kmart, is taking over Sears Hometown and Outlet Stores. They have signed a definitive merger agreement in this connection. Under the deal, Transform will acquire the outstanding shares of Sears Hometown not owned by ESL Investments, and its affiliates at $2.25 per share in cash. This is subject to an upward adjustment in the event a sale of Sears Hometown’s Outlet Segment has occurred that satisfies criteria specified in the merger agreement. ESL Investments and its affiliates, the majority owners of Transform, presently hold 58 per cent of the outstanding shares of Sears Hometown.

The transaction will reunite Sears and Kmart with Sears Hometown, which was spun off from Sears Holdings Corporation, the former parent company of Sears and Kmart, in 2012. Having these businesses under common ownership will accelerate Transform’s strategy of growing its smaller store format by adding Sears Hometown stores. It will also expand the company’s footprint as a multi-channel business that can serve customers through a variety of shopping experiences to meet their needs, provide growth for Transform’s marquee brands, including Kenmore and DieHard, and increase opportunities for Sears Home Services and Financial Services businesses, as well as the Shop Your Way social shopping destination and rewards programme.

Edward S Lampert, Chairman of Transform, said, “We are excited to bring Sears Hometown, its associates and network of independent dealers and franchisees back into the Sears and Kmart family. Our investment demonstrates our commitment to growing Transform for the benefit of our members and customers, associates, vendors and communities across the country. While, initially, the companies will operate independently, it sees many opportunities where we can partner to serve our customers better and enjoy efficiencies of scale once these businesses are under one roof.”

Will Powell, Chief Executive Officer and President of Sears Hometown and Outlet Stores, said, “I believe this is the best path forward for Sears Hometown and serves the interests of all our constituents, including our customers, associates, dealers, franchisees and stockholders. We believe that reuniting our Sears Hometown segment stores with Transform’s Sears full-line stores will result in a more consistent customer experience across Sears branded storefronts, generate higher total revenues and leverage efficiencies of scale to improve costs and margins, all of which could lead to improved profitability for Sears Hometown’s dealers and franchisees.”

Sears Hometown presently maintains a network of 491 Hometown stores and 126 Outlet stores located in 49 states, Puerto Rico and Bermuda and generated $1.4 bn in net sales in 2018. When the two companies are combined, they will rank as the third largest appliance retailer in the United States in terms of sales.

Under the terms of the merger agreement, Sears Hometown has a specified period of time in which it can market and sell its Sears Outlet and Buddy’s Home Furnishing Stores businesses (together, the “Outlet Segment”) to a third party for not less than $97.5 mn. If the Outlet Segment is sold in accordance with the terms of the merger agreement, it will not be acquired by Transform in the acquisition of Sears Hometown.

At the completion of the acquisition of Sears Hometown, each share of Sears Hometown’s outstanding common stock not owned by ESL Investments, and its affiliates will be converted into the right to receive a base amount in cash equal to $2.25 per share. Sears Hometown must enter into an agreement to sell the Outlet Segment no later than August 24, 2019 (extendable by 10 days in specified circumstances) and the sale must be completed by October 23, 2019 (extendable by 15 days in specified circumstances).

Under the terms of the merger agreement, Transform will have the opportunity to match the economic terms of any proposed sale of the Outlet Segment to a third party that is expected to result in net proceeds to Sears Hometown of less than $120 mn.