* Sears boosts stake in Sears Canada to 90.4 pct
* Pershing Square sells off entire stake for $560 mln
* Sears sees Q1 EPS at nil to 31 cents, above Street view
* Minority shareholders could hold out
* Sears shares up 8.1 pct; Sears Canada down 1.8 percent (Adds analyst note, final stock prices)
By Scott Anderson and Phil Wahba
TORONTO/NEW YORK, April 23 (Reuters) - Sears Holdings Corp (SHLD.O) took a step toward full ownership of its Canadian unit, saying on Friday that it is buying hedge fund manager Bill Ackman’s stake in Sears Canada Inc SCC.TO for $560 million.
Sears Holdings also forecast a first-quarter earnings range that seemed likely to beat analyst expectations, and the U.S. retailer’s shares closed the day up 8.1 percent.
Sears Holdings, run by hedge fund manager Edward Lampert, is buying 18.7 million shares, or about 17.3 percent of Sears Canada, from Ackman’s Pershing Square Capital Management for C$30 apiece, the companies said on Friday.
The transaction will take Sears Holdings’ ownership of Sears Canada to 90.4 percent and cement its hold on the Canadian department store after a failed attempt to take the chain private several years ago. The deal should close on Tuesday.
Sears Holdings also said that it expects net income for its quarter ending May 1 to be in the range of nil to $35 million, or nil to 31 cents per share when it reports its first-quarter earnings by May 20.
Analysts are expecting 3.6 cents per share on average, according to Thomson Reuters I/B/E/S.
Standard & Poor’s Equity Research analyst Jason Asaeda raised his target price on Sears Holdings by $22 to $130, citing its “favorable sales trend” in a research note.
Sears Holdings in recent years has lost sales to discount retailers such as Wal-Mart Stores Inc (WMT.N) and electronics retailers such as Best Buy Co Inc (BBY.N). Sales fell 13 percent to $44 billion between its fiscal years 2008 and 2010.
The cash-rich Canadian unit has been seen as a way to improve Sears Holding’s financial position.
“Buying more of Canada, a much better positioned retailer, is a plus,” Credit Suisse analyst Gary Balter wrote in a research note.
Sears Holdings also said its business had improved during the first quarter, with sales at stores open at least a year up 3.2 percent at Kmart stores and 0.3 percent higher at U.S. Sears stores. Companywide same-store sales rose 1.7 percent compared to the year-earlier period.
Sears Holdings, which operates about 3,900 stores in North America, said clothing, home products and toys had performed well during the quarter. Sales of tools and home electronics were weaker, similar to trends in the previous quarter. [ID:nN23202826]
Lampert’s ESL Investments Inc owns 56.9 percent of Sears Holdings. Ackman’s fund owns large stakes in companies such as as No. 2 U.S. specialty bookseller Borders Group Inc. BGP.N
Sears Holdings shares finished the day up $9.12, or 8.1 percent, at $122.01. Sears Canada’s shares were down 52 cents, or 1.8 percent, to $29 on the Toronto Stock Exchange.
Sears Holdings tried in 2006 to take its Canadian unit private, attempting to buy the shares it did not own for C$18 a share. But it was thwarted by minority investors, including Ackman, who then owned about 11.6 percent of Sears Canada.
The Ontario Securities Commission, a regulatory board, in August 2006 put the brakes on Sears Holdings’ C$892 million buyout offer when it was unclear whether most minority stakeholders supported the buyout, as required by law.
With Pershing Square selling off its stake, the next largest shareholder in Sears Canada is Calgary-based Bissett Investment Management Ltd, which owns 1.2 percent, according to Thomson Reuters data.
One minority shareholder suggested a C$30 price tag would be too low to sway any potential holdouts.
“If anything, I actually think that it would be harder for them to privatize the company,” said Colin Stewart, a portfolio manager at Toronto-based JC Clark, which owns about 1 percent of Sears Canada shares.
“Something certainly in the C$35 to C$40 a share range, if not above C$40, would represent fair value of the company.”
Sears Canada is sitting on $1.3 billion in cash, though Stewart said minority shareholders were lobbying the company to deploy the money as a special dividend or a share buyback, among other possibilities.
$1=$1.00 Canadian Reporting by Scott Anderson in Toronto and Phil Wahba in New York, editing by Gerald E. McCormick and Robert MacMillan