Shareholders at Sears Canada largely rejected a buyout bid from Sears Holdings ( SHLD), but the U.S. parent extended its tender offer for the remainder of the shares until March 31 without raising its bid.

Sears Holdings, the retail empire formed last year by hedge fund guru Ed Lampert, said Monday that it now owns about 63.2% of Sears Canada, up from its previous stake of about 53%. The initial deadline for Sears Holdings' offer to buy the entire company for C$16.86 a share came Friday. If it doesn't win its bid the second time around, the parent threatened to cut off dividend payments to Sears Canada shareholders.

Shares of Sears Holdings were recently down $1.60, or 1.2%, to $133.30. The stock caught a bid last week after the company reported better-than-expected sales and earnings for its holiday quarter.

Sears' bid to buy its Canadian counterpart was jeopardized last month when a group of independent Sears Canada directors advised shareholders to reject the offer on grounds that it was too low. They cited a report from the company's financial adviser, Genuity Capital Markets, that valued the company at C$19 to C$22.25 a share.

Sears Holdings responded aggressively by disputing the report. It has said that if shareholders refuse its offer, they could find themselves owning a company that faces widespread competitive threats and doesn't enjoy the financial and operational backing of its parent.

Natcan Investment Management, whose 9% stake in Sears Canada makes it the retailer's largest independent shareholder, agreed to tender its 9.7 million shares to the offer. Also, Sears Holdings said five of Sears Canada's eight top executives said they planned to tender all of their shares or sell into the market Friday. The other three executives, including CEO Brent Hollister, had already sold a "significant portion" of their stock.

Meanwhile, in what many view as a sign of protest, all six of the independent Sears Canada directors who recommended against the deal have announced that they won't seek re-election to the company's board at its annual meeting on April 27, even if shareholders follow their advice and reject the parent's offer.

Sears Holdings said Monday that it's seeking to replace them with three new independent directors. The company said, given its majority ownership of Sears Canada, that "it is appropriate that a majority of the directors of the new board of Sears Canada be employees of either Sears Holdings or Sears Canada."

Several Canada-based analysts told TheStreet.com that Vornado Realty ( VNO) and hedge fund Pershing Square Capital own sizable stakes in Sears Canada and opposed the parent's tender offer. In a recent regulatory filing, Vornado reported owning 7.5 million shares of Sears Canada. Pershing's stake in the company is not disclosed publicly. Neither party has returned calls requesting comment.

Despite the opposition that thwarted its plans last week, Sears Holdings is extending its tender offer until 8 p.m. EST on March 31. It said that if it fails to take over the entire company this time around, it will withdraw its offer and stop paying its 6-cents-a-share quarterly dividend to Sears Canada's shareholders. Also, it won't support any extraordinary dividend payments to public shareholders in 2006.

"We are extending our offer to provide shareholders with a continued opportunity to tender to our C$16.86 offer which we believe represents a full and fair price," Sears said in a statement. "Unless shares that, when combined with the shares already tendered, represent a majority of the minority agree to support our transaction, we do not intend to extend our offer again."

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