Lampert had put forward a $4.4 billion bid to save Sears by buying it out of bankruptcy through his hedge fund ESL Investments, but he could not reach an agreement with Sears' advisors, who believe the chairman's offer is insufficient, according to CNBC sources.
It gives Sears a chance to survive, which appeared to be slipping way heading into the hearing.
The bid called for keeping 425 stores open and offering jobs to 50,000 of its remaining employees. According to lawyers close to the matter, one of the main sticking points was that the $4.4 billion bid, which included $1.3 billion in financing from three financial institutions, didn't include cash.
Attorneys for Sears announced it had accepted a revised bid from a hedge fund controlled by the former CEO of Sears, Eddie Lampert.
A recent Bloomberg report said Sears representatives summoned liquidation firms and other advisers to emergency meetings on Friday after it rejected the bid and that the retailer would now focus on preparing for liquidation sales to start as early as mid-January.
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Sears is getting another reprieve from liquidation after its chairman and largest shareholder revised his bid to save the iconic brand.
Sears was down almost 94% in the past year.
Lampert's offer did not include putting up cash to back the credit bid. If Sears doesn't accept Lampert's bid, it's likely the retailer will face liquidation and begin the shutting down process very soon.
But the fact that Sears has an offer that seeks to rescue it doesn't guarantee it will escape liquidation.
Sears filed for bankruptcy protection on October 15, 2018. The creditors' attorneys question whether the terms of those loans unduly benefited Lampert and his hedge fund rather than Sears.
Tuesday's court hearing in the Southern District of NY comes a day after the retailer took to social media to dispel the notion it was not longer in the running, saying in a tweet: "We may be slowing down, but we are not out of the race just yet".