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The Deal: Sears Has Time on Its Side

NEW YORK ( The Deal) -- In a twist of fate over the past year or two, department store operator Sears Holdings (SHLD - Get Report) may have more time to turn itself around than troubled rival J.C. Penney (JCP - Get Report).

That might not have been what industry watchers would have predicted when Apple's (AAPL) retail head Ron Johnson sauntered into the Plano, Texas-based retailer in late 2011, bringing a Sillicon Valley approach to shake up the dowdy department store chain.

That swashbuckling, and an inattentiveness to J.C. Penney's core customers, cost Johnson his job in short order.

And the drama continues at J.C. Penney as Johnson's original backer, hedge fund manager Bill Ackman, had a very public spat with the board he sat on which he left in a huff.

Which might go to show: hedge fund managers shouldn't run retailers. Because that has been somewhat the case over at Hoffman Estate, Ill.-based Sears where CEO Eddie Lampert still controls about 62% of the company.

Yet Sears could be in a better position to make it through a revamp than J.C. Penney for a number of reasons.

In Sears' favor is a real estate portfolio it has yet to fully monetize, which could be borrowed against to help fund operations, according to according to Moody's Investors Service analyst Scott Tuhy. By Tuhy's count, Sears' real estate holdings, as measured by store count, are comparable to its competitor's so it should be able to raise at least another $2.5 billion as J.C. Penney has done already.

Sears also owns Land's End, which it acquired for $1.9 billion in cash in 2002. From the most recent figure available, in January 2012, the division was valued at $1.25 billion, or about 7.5 times Ebitda, according to Mary Ross Gilbert, a managing director at Imperial Capital. But considering recent multiples for retail consumer brands stretching into the double digits, that number could be higher, perhaps around $1.5 billion at about 9 times Ebitda.

Sears has also earmarked $215 million in real estate to be sold in the future, adding yet more cash to its balance sheet, with $45 million anticipated in the next six weeks and another $170 million remaining.
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