Himalaya Capital LLC

From The Wall Street Journal, April 12, 2006, p. C1

End of 2004: Eddie Lampert took over Kmart while it was in bankruptcy and merged it with Sears Holdings.

Sears Canada is controlled by Sears Holdings but trades on the Toronto Stock Exchange. Bill Ackman bought large numbers of Sears Canada shares.

Wanting to protect his partners from Canadian taxes, Ackman entered a transaction with a US bank which entered a similar transaction with Scotiabank. Summary: for a fee, Ackman kept his stock and avoided the taxes, but lost the ability to vote the shares.

Sears Holdings offered to buy out Sears Canada shareholders for CAD16.86 a share. Sears Canada’s minority shareholders wanted more–CAD19 to CAD22.25 a share.

A couple of weeks ago: Sears Holdings raised its offer to CAD18 a share. On the Toronto exchange, Sears Canada traded above the offer price.

Friday April 7: Sears Holdings claimed the ability to force the deal under Canadian securities law, having persuaded enough shareholders to accept its offer. The critical voter was Scotiabank, which pledged 4.5 million shares at the CAD18 offer.

Conflict: Scotiabank should not accept an offer detrimental to its client, Ackman. However, the transaction was specifically designed to give voting rights to Scotiabank while Ackman retained economic interest. Scotiabank also claims that the pledged shares were not Ackman’s. However, Scotiabank refused to unwind its agreement with Ackman, claiming investment-banking conflict.