Back when it was a retail powerhouse, Sears used to say it was "Where America Shops for Value." Now, as a pathetic remnant of a once-great company prepares to emerge from bankruptcy, its new slogan should be "Where Eddie Lampert Shops for Tax Savings."
Why do I say this? Because according to an analysis by tax expert Bob Willens of Robert Willens LLC, Sears's bankruptcy reorganization is set up in a way that will allow Lampert, a hedge-fund operator who is Sears' principal creditor and its former controlling shareholder, to save about $2 billion of income taxes.
What's more, because of an odd intersection of tax law and bankruptcy law that we'll get to in a bit, those prospective tax savings are far more valuable to Lampert than they would be to any other would-be buyer or liquidator.
That would have been one powerful motivation for Lampert to outbid competitors to become New Sears's controlling holder. (Lampert and his representatives declined to comment for this column.)
Lampert, who took control of Kmart in 2003 and combined it with Sears two years later, has become famous - actually, infamous - for presiding over the downfall of a once-iconic company that he repeatedly promised to turn around. But he couldn't fix Sears despite playing endless financial games, splitting off pieces into new companies, closing lots of stores and firing huge numbers of workers.
Now, to taxes. Over the years, Sears has run up about $5 billion of "net operating losses," according to Willens's report, and has also been unable to use about $1 billion of tax credits that it has earned. At current tax rates, the operating losses are worth about $1 billion. Add the unused tax credits, and you get about $2 billion of prospective tax savings.
But, you ask, given how badly Sears has performed over the years - and given the less-than-wonderful prospects for bricks-and-mortar retailers, thanks in large part to predations by Amazon, whose CEO Jeffrey Bezos owns The Washington Post - how on earth could post-bankruptcy New Sears possibly produce enough profit to use 10-digit tax losses?
It has to do with Lampert's unique situation as the principal holder of Sears' debt. He's best known, of course, for being Sears' controlling shareholder. But his holdings of Sears debt are what make him eligible for a special tax break, according to Willens's analysis.
Any New Sears owner other than Lampert would face severe limits on how much of Sears' net operating losses could be used in a given year. The current annual limit: about 2.4 percent. "The number is based on a secret (Internal Revenue Service) formula, sort of like Coca-Cola," Willens quips.
By contrast, Lampert can use those losses without restriction. The obvious way to do that is to have New Sears buy profitable businesses and use its net operating losses to shelter the acquired businesses' profits.
This strategy would work for Lampert, but not for a buyer subject to the 2.4 percent limit.
Please understand that although I'm not thrilled at the prospect of taxpayers bestowing $2 billion on someone like Lampert, whose Sears sortie has caused immense damage and pain throughout the country, I'm happy that Sears is being kept open rather than being liquidated.
The fall of Sears has inflicted years of pain on employees who lost their jobs, on vendors who got whacked, and on communities that ended up with vacant stores that once housed thriving operations.
Closing the remaining Sears stores would add new damage. Even if the stores ultimately close, it's better to have them open for at least a while than to have them shuttered now.
Lampert has been damaged, too. He was once considered both an investing wizard and a deft operator who could successfully apply Wall Street standards to a Main Street business like Sears. Now, he's seen as a loser - even though he's probably ahead on his overall Sears investment, which includes shares of the companies he carved out of Sears and turned into separate, stand-alone entities. He's doubtless still among America's financial elite.
Giving a failed operator like Lampert a better tax deal than any other Sears buyer sure seems absurd. But that's how the game is played.
And that's why I'm suggesting the "Where Eddie Lampert Shops for Tax Savings" slogan for New Sears. However, I won't hold my breath waiting for that to happen.
(Disclosure: My wife and I own stock in Sears competitor TJX, an investment made long before this column was conceived.)
The Washington Post's Alice Crites contributed to this report.