In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation

Edward Lampert (defendant) was the controlling shareholder of Sears Hometown and Outlet Stores, Inc. (SHOS). SHOS had two segments: Hometown, which was unprofitable, and Outlet, which had become profitable. A special committee of independent SHOS directors developed a plan to liquidate Hometown and operate Outlet as a standalone business. The committee estimated a per-share value of $9.58. Lampert believed the plan overestimated Outlet’s ability to operate independently and underestimated liabilities in the liquidation. He used his majority-shareholder power to amend SHOS’s bylaws to require supermajority board approval for liquidation and impose a 30-day delay for liquidation decisions. He also removed and replaced two committee members. Collectively, the effort was known as the controller intervention. Lampert subsequently offered to buy the entire company for $2.25 per share. The new committee agreed to a whole-company sale subject to a contingent value right linked to a successful sale of the Outlet segment. The deal gave SHOS 75 days to seek a buyer for Outlet, and it gave Lampert the right to match any third-party offer up to $120 million. A third party submitted a $121 million bid, negating Lampert’s match right. The minority shareholders (plaintiffs) ultimately received $3.21 per share, $0.96 higher than Lampert’s original offer but significantly lower than the estimated value under the liquidation plan. The minority shareholders sued Lampert, alleging that he breached his fiduciary duties by using his voting power to override the liquidation plan and push through the lower-value sale transaction.