In a stunning move that could forever alter one of Chicago's most enduring business icons, Kmart Holding Corp. pounced on Sears, Roebuck and Co. today in a $11 billion merger.

The new Sears Holdings Corp. will become the nation's third-largest retailer and will continue to occupy Sears headquarters in suburban Hoffman Estates.

But it will be controlled by Kmart's chairman, Edward S. Lampert, a 42-year-old Connecticut investor, who made his name buying Kmart out of bankruptcy.

Lampert raised almost $1 billion in a matter of months selling many Kmart stores to other retailers, including Sears. His ESL Investments owns a majority of Kmart shares and 15 percent of Sears' stock.

In a press conference today, Lampert and Sears Chairman Alan J. Lacy said the idea behind this merger is to build up the new company, not tear it down. The new management team will try to forge a single, lower-cost competitor, while keeping Sears and Kmart as separate chains.

Still, the new company likely will sell off some stores and cut redundant operations.

"This is going to be an enormous undertaking," Lampert said. "We'll need the best of the Kmart team and the best of the Sears team."

The new Sears will have about $55 billion in sales and Lampert and Lacy hope that will give it enough girth to take on robust industry giants like Wal-Mart Stores and The Home Depot Inc., which are both still bigger than the combined Sears-Kmart operation.

The move will push Kenmore appliances, Craftsman tools and DieHard batteries into Kmart's 1,500 discount outlets. It will help Sears spruce up its 850 department stores with Kmart's wildly popular Martha Stewart line of linens, towels and paints.

While Sears Holdings will be based in Hoffman Estates, Kmart chairman Lampert takes the chairman's job. Sears CEO Lacy will become vice chairman and CEO of the new holding company, but the new board of directors will have seven members from the Kmart board and only three from Sears.

Aylwin B. Lewis, Kmart's chief executive, will be the CEO of both the Sears and Kmart divisions of the new holding company, and Kmart will maintain a "significant presence" at its present headquarters in Troy, Mich.

Lacy said the merger will boost both companies by "accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies." Sears has been adding stand-alone stores with a product mix closer to Kmart; the Sears Grand store in Gurnee was one of the first.

The combined company will have 3,500 stores, but some likely will be sold.

"We have to consider other alternatives" for underperforming stores, Lampert told analysts today. "I think we'll probably end up over time opening more stores than we close, but obviously if we don't operate the stores well, it might be the other way around."

A joint statement from Kmart and Sears said the combined company will review its stores "to monetize non-strategic real estate assets" – a strategy that could include dealing stores to competitors.

Lampert predicted the combined company will save $500 million within three years by squeezing costs out of its supply chain. "We need to have a very low cost structure in order to compete with our biggest competitors,'' he said.

Sears stock leaped 17 percent in late New York Stock Exchange trading, closing at $53.06 after going as high as $55.90.

Kmart shares jumped 8 percent on the Nasdaq stock market, shooting as high as $119.69 before closing at $109.

The merger swaps Kmart shares one-for-one with the new Sears Holdings shares, while Sears stockholders will get either $50 a share or one share of the new company for every two Sears shares they now hold.