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Sears Puts Canada For Sale: Was Anyone Asking?

Tickers in this article: SEARF SHLD TGT

NEW YORK (TheStreet) - Sears Holdings is considering strategic alternatives for its 51% stake in Sears Canada. The Eddie Lampert-run company is also considering hiring investment bankers to lead that strategic review. But was anyone really asking?

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Sears Canada sold some of its prized real estate assets in 2013; raising $509 million to pay a special dividend to its shareholders in December. The biggest beneficiary of those asset sales was Sears Holdings, which retained a controlling interest in Sears Canada since a partial spin-off of the unit in late 2012.

Sears received about a quarter of a billion dollars in the Sears Canada special dividend. Sears Canada also recently forked over a 50% interest in a development in British Columbia to Concord Pacific Group for a $140 million payment, and created a 50/50 JV with Montez Income Properties that generated $315 million in proceeds.

That Sears now is publicly announcing the company wants to sell its Sears Canada stake is no surprise. Cash needs at Sears are just as pressing as they were at the end of the year, and Sears Canada may be one of the few assets in the company's empire that could find interested buyers.

It's also no surprise Sears Holdings announced its intent to sell its Sears Canada stake. Sears earnings are due on May 22 -- it's hard to imagine remaining investors in the company have much to hope for other than asset sales and repairs to the company's balance sheet.

Sears Holdings shares actually fell nearly 6% in Wednesday trading on its announcement, whereas Sears Canada rose nearly 5% to $15.14.

If buyers aren't banging on Sears Holdings doors for a piece of Sears Canada, Wednesday's announcement could drum up interest among strategic and private equity buyers, according to Sachin Shah, a merger arbitrage strategist at Albert Fried & Co .

Hudson Bay Company , the owner of Lord & Taylor and Saks Fifth Avenue might seem a likely buyer, however, it has made a canny investment on the turnaround of high-end retailers. Sears Canada is decidedly middle-to-low market. Target , meanwhile, has struggled to grow in Canada.

A financial buyer, however, may look at Sears Canada as an asset that can be managed with some leverage given its relatively solid balance sheet and remaining real estate assets.

Sears Canada generated about $4 billion in revenue in 2013 and $35.7 million in adjusted earnings before interest, taxes, depreciation and amortization as same-store sales fell 2.7% in the year, versus a 5.6% decline in 2012.

The company also ended the year with $374 million available on an $800 million senior secured credit facility that is guaranteed by the company's inventory and credit card receivables. Cash and cash equivalents were $605 million as of Feb. 1, 2014.