Kmart acquiring Sears in $11.5 billion deal
Kmart chairman Edward Lampert speaks to reporters in New York on Nov. 17. following the announcement of the merger between Kmart and Sears, Roebuck. (AP/Gregory Bull)
The combined Sears Holdings Corp. will be based out of Sears' Hoffman Estates, Ill., headquarters, but executives of Kmart Holding Corp. are in charge: Edward Lampert, who took Kmart out of bankruptcy, with be the new chairman, the title he now holds at Kmart.
Lambert's investment company, ESL Investments, owns a majority of Kmart shares and 15 percent of Sears' stock.
Sears CEO Alan J. 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 headquarters in Troy, Mich.
The combined company will have 3,500 stores, but some stores may be sold. A joint statement from Kmart and Sears said the combined company will review its stores "to monetize nonstrategic real estate assets." Older, ailing retailers like Sears have lots of stores in attractive locations that competitors might use more profitably.
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, with the Sears Grand store in Gurnee, Ill., one of the first.
The company said Kmart will continue to sell Martha Stewart Everyday, Joe Boxer and other brands, but left open the possibility that Sears' popular brands may get wider distribution. Kenmore appliances already are sold at Sears' Great Indoors home stores
Sears stock leaped 21 percent in morning New York Stock Exchange trading, and Kmart shares jumped 17 percent on the Nasdaq stock market.
The deal 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.
The merger, expected to close by the end of March 2005, is subject to approval by Kmart and Sears shareholders, regulatory approvals and customary closing conditions.
Kmart filed for Chapter 11 bankruptcy protection in early 2002, leading to the closing of about 600 stores, termination of 57,000 Kmart employees and cancellation of company stock.
The retailer emerged from bankruptcy in May 2003 and in March posted its first profitable quarter in three years.
Kmart, in recent years, has been shedding many of its underperforming stores, a strategy that has helped the once-struggling discount retailer bounce back after it emerged from bankruptcy. Kmart recently agreed to sell 50 stores to Sears for $575 million as part of that strategy.
A slumping icon
Speculation that Lampert was pushing to make a move on Sears had been growing for months as his investment stake grew and Sears' retailing picture continued to sour.
The company, founded in 1886, is an American icon. It has $9.5 billion in market value, $31 billion in 2003 merchandise sales and $2.7 billion in cash on hand.
Sears' heyday was the 1960s when it ruled shopping malls, selling everything from kitchen stoves to kids' apparel and power tools to a rapidly growing middle class. The Sears credit card gave many young families their first access to revolving credit. Its Allstate insurance unit, later spun off, insured their homes and autos.