Mark Cohen, a former chairman and CEO of Sears Canada Inc., said people used to think he was “nuts” for his dire predictions about Sears under the leadership of U.S. hedge fund billionaire Edward Lampert.
Mr. Cohen left the company in August 2004, a few months before Kmart Corp. announced it would buy Sears, Roebuck & Co. in a deal that married two of the biggest names in U.S. retail. At the time, Wall Street heralded the move as a masterstroke, sending shares in both companies soaring.
Through his hedge fund ESL Investments Inc., Mr. Lampert had gained control of Kmart during its troubled times in bankruptcy court. Kmart’s subsequent acquisition of Sears earned Mr. Lampert comparisons to Warren Buffett.
At the height of his prominence in the mid-2000s, his hedge fund had big-name investors including media mogul David Geffen. Its annual returns were widely reported to average about 30% annually.
Things subsequently went downhill. Sears Holding Corp.’s plan to sell most of its stake in Sears Canada is the latest blow for the Canadian chain after reporting nine losses in 14 quarters amid shrinking market share.
Mr. Cohen, who now teaches at Columbia University’s business school in New York City, said he’s seen it coming for a long time.
“The Canadian business, which was perfectly healthy and profitable when I left, has been a victim of Lampert’s intent to essentially liquidate the business,” Mr. Cohen said. “It’s a tragedy.”
Mr. Lampert, who did not respond to interview requests placed through a spokesman at Sears Holdings, launched ESL in 1988 at the age of 25. He started the fund after leaving a job with Goldman Sachs, just four years after graduating from Yale University.
His father, a New York lawyer, died when he was a teenager, leaving him to work nights and weekends in high school to help support the family. He was also reportedly kidnapped and held captive for two days during Kmart’s bankruptcy proceedings, an event that reportedly reinforced his preference for privacy.
Unlike other hedge funds involved in complicated financial transactions like shorting stocks and trading derivatives, Mr. Lampert’s investing strategy is to buy large stakes in a small number of stocks he thinks are undervalued and hold them for a long time. ESL’s longstanding investment in the car dealer AutoNation Inc. is an example of that strategy.
The Canadian business, which was perfectly healthy and profitable when I left, has been a victim of Lampert’s intent to essentially liquidate the business