AutoNation, Sears, and Autozone Getting Closer Together

So when will the combination of the three happen?

AutoZone (AZO) added two new Board Members the other day. They are:

• William Crowley, a former managing director of Goldman Sachs (GS). Crowley also has served as a director of Sears Holding (SHLD) since 2005. He has served as a director of Sears Canada Inc. since March 2005 and as the chairman of the board of Sears Canada since December 2006. Since 1999, he has been president and CEO of ESL Investments Inc., a private investment firm run by Sears largest shareholder Eddie Lampert. Crowley also serves as a director of AutoNation (AN) Inc.

• Robert Grusky founded Hope Capital Management LLC in 2000 and serves as its managing director. That same year he co-founded the private equity firm New Mountain Capital LLC and served as principal, managing director and member. He's now a senior adviser. Grusky is a director of AutoNation (AN) and Strayer Education Inc.

The additions were part of a late June agreement with ESL and Lampert regarding his ownership.

This now means the three boards have overlapping representation. Lampert controls the Sears Board, and will have 20% to 30% of the AutoZone Board after the 2008 Meeting in December and 25% of AutoNation's.

What does it all mean? Is he taking them private? No. There is no way with the incestuous Board relationships that Lampert could pass any "fairness" test in a "taking private" scenario.

What then? Lampert will eventually own all three under the Sears Holdings umbrella. Sears in one swoop will become the nation's largest auto dealer, auto parts and auto repair company, with considerable pricing and cost savings power.

When? Not this year. Next, maybe. But wait you say, ESL owns the shares of both AutoZone and AutoNation, not Sears. So what? Lampert can sell the shares to Sears in a private sale and in a day Sears owns almost 50% of both companies. Lampert needs no authority from either group of investors (ESL or Sears) as he has full authority to allocate capital as he wishes now. ESL investors would most likely be happy to take less for their AN and AZO shares now (than a public auction would garner) recognizing they are still the largest shareholders of Sears and will make the money in spades later.

Folks who have $5 million to let Lampert lock up and play with for 5 years see the bigger picture.

If this eventually happens, one has to think it has been in the cards for years now. That would possibly make Lampert the most patient man in the world...

Disclosure ("none" means no position): Long SHLD, AN, None.

Comments

[BULRUN100:]

MAY OR MAY NOT HAPPEN BUT ITS A THOUGHT!!!!!!
I STILL THINK BUYING A HOME BUILDER WITH LOTS OF LAND AND ASSETS ON THE CHEAP HERE WOULD MAKE LOTS OF SENSE.FILL THAT HOUSE WITH KENMORE/SEARS EVERYTHING.LET THE BASHING BEGIN.

2008 Aug 20 11:29 AM

[fcharlie:]

I agree that the plan is to eventually have AN and SHLD combined, but as an AutoNation shareholder, what worries me is that regardless of how undervalued the shares are today, Sears could take it over with minimal premium. ESL already owns nearly 44% of AN shares. SHLD has the balance sheet to to pay with cash. If Eddie Lampert has control over both entities, he's not going to pay a penny more than necessary to bring the two together.

2008 Aug 20 01:05 PM

[123:]

Todd,

Do you ever respond to reader comments? Or are you content with posting propaganda-laden fluff pieces?

2008 Aug 20 10:16 PM

[selene:]

How do you get to "20% to 30%" of AutoZone board? There will be 12 members reduced to 10. Which current board member is linked to Lampert? Or other explanation? Thanks

2008 Aug 21 11:31 AM