As if Sears Holdings doesn’t have enough woes, new questions are swirling about the company’s shares.
Investment manager Memento today presented the retailer’s board of directors with a letter outlining ongoing concerns surrounding stock activity and called on the group to take action, including possibly going private.
Memento, acting on behalf of Elarof Trust, which has 2 million Sears Holding shares, pointed to an “unusually high volume” of short selling activity over the past two years compared to the company’s available shares. This, the money manager said, creates volatility and pushes share prices down.
“We have observed on several occasions that the number of shares of Common Stock outstanding have fallen below short interest activity as measured by real available float,” the letter stated, noting a 3.6 million share deficit in early 2017.
The investor stated a similar phenomenon with Sears Holdings shares. “Based on our analysis, it would not be possible for market makers to appropriately hedge their investments and, consequently, deliver the shares of options when exercised,” the letter continued.
Memento said the activities raise concerns that there have been violations to the U.S. Securities and Exchange Commission’s Regulation SHO, which regulates short sale practices.
To attempt to rectify the situation, Memento is calling on Sears to form an independent board committee to protect shareholder interests, seek an SEC investigation into potential violations with a temporary suspension of short selling and explore the possibility of going private.
Thus far, Sears has not issued a public response.
The company has been under the microscope lately with industry watchers keeping note of its debt load, diminished sales, contentious relationship with some vendors and deplorable store conditions in anticipation of what many have predicted to be the inevitable demise of both Sears and Kmart.
When it comes to activist investors however, Sears Holdings is not alone.
As the retail landscape has deteriorated over the last year, investors have been vocal about the ways in which they they feel store chains could act to increase shareholder value. Land & Buildings Investment Management called on HBC to monetize its real estate holdings and then balked over a deal that included the sale of the Lord & Taylor flagship and an investment from Rhône Capital. Dillard’s faced a similar outcry from Snow Park Capital Partners, which encouraged the chain to sell or lease its real estate given the “low productivity” of its stores.
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