View Full Version : K-Mart and Sears to join up

11-18-2004, 12:17 AM
Intersting, two losing corporations joining together to fight a winning corporation. I guess we'll have to see if it works! K-Mart is probably the largest loser of the two, but clinging onto another loser to keep from falling completely isn't always such a good deal. I guess we'll have to wait and see. If K-Mart can lowers there prices, I think that would help things out a lot. If they're gonig to keep high prices than they're going to have to produce the appearance of a more upscale store, like Target has done so successfully. In my opinion, the last time I was in K-Mart, it just wasn't that impressive. I must say though, I have been impressed with the new Super Targets! They're just so much cleaner than Wal-Mart! Also, the service is jsut so much better at Target than Wal-Mart. People don't mind paying a little more if they're getting better service! Unfortunately, I never felt I got better service at K-Mart.

I like Sears, but they've shot themselves in the foot many times in the past. Everything from a crooked credit department to crooked dealings overall. For the longest time, their auto shop had a reputation for breaking more on your car than what they fixed, and making repairs that weren't necessary.

"Kmart to Acquire Sears in $11 Billion Deal

Led by Kmart Holding Corp. chairman Edward Lampert, the new Sears Holdings Corp. would be the nation's third largest retailer. Both chains would survive, but several hundred stand-alone Kmarts throughout the country are expected to be transformed into Sears stores. The goal: A quick kick-start to sales away from Sears traditional base of shopping malls.

Lampert and Sears chairman and CEO Alan Lacy, in announcing the deal on Wednesday, promised up to $500 million a year in savings within three years from store conversions, back-office job cuts, more efficient buying of goods and possible store closings.

Shares of both Kmart and Sears, Roebuck and Co. surged on the news, but some analysts are skeptical that it amounts to a home run.

"Both have been broken in some sense," said Dan Hess, president and chief executive of Merchant Forecast, a New York-based independent research company. "Kmart has to learn to survive in a Wal-Mart world and Sears needs to learn to survive in a world of Home Depot and Lowe's."

Lampert, 42, was as an assistant to Robert Rubin at Goldman Sachs & Co. before leaving to form a hedge fund at the age of 25. He orchestrated the deal and will lead a new board that will be dominated by Kmart directors.

""We need to have a very low cost structure in order to compete with our biggest competitors," said Lampert, whose Greenwich, Conn.-based investment firm controls Kmart and is Sears largest individual shareholder, with a 15.8 percent stake.

For Sears, the merger allows the company to move more quickly to where it believes its strongest base of customers are. "Off mall is where we need to move very aggressively," said Lacy, who will become vice chairman and chief executive of Sears Holding.

Lacy said he and Lampert have known each other for four years. The idea for a combined company first arose when they were in talks about Sears' purchase of 50 Kmart stores earlier this year, he said.

The new company is expected to have $55 billion in annual revenues and 3,500 outlets. That will mean it will trail only Wal-Mart Stores Inc. and Home Depot Inc. among the biggest U.S. retailers.

It will be headquartered in the northwestern Chicago suburb of Hoffman Estates, where Sears has its headquarters, but will maintain a "significant presence" in Troy, Mich., where Kmart is based.

The deal marks a remarkable comeback for Kmart, which 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.

Lampert gained control of Kmart when the retailer emerged from bankruptcy in May 2003 through the conversion of his debt holdings into equity. In March, Kmart posted its first profitable quarter in three years.

While same-store sales have continued to decline, Lampert has maximized cash flow in part by selling off some of the stores to Sears and Home Depot.

On Wednesday, Kmart said it earned $553 million, or $5.45 per share, in the third quarter ended Oct. 27, compared with a loss of $23 million, or 26 cents per share, for the same period a year ago. Its stock price has risen more than sevenfold from $15 a share when it emerged from bankruptcy.

Sears' roots date to the late 1800s when it offered merchandise by mail order to farmers, opened its first retail store in 1925 and eventually became the nation's biggest department store operator.

Mired in a retail slump, Sears had long fallen out of favor on Wall Street after losing ground to competitors and enduring sluggish sales for years. The company last fall introduced its Sears Grand stores, which offer grocery and convenience items besides traditional Sears fare such as clothing, home appliances and tools. The concept had delivered promising results for the retailer at its first three stores in metropolitan Salt Lake City, Las Vegas and in the Chicago suburb of Gurnee.

Lampert said the goal for the combined company is to achieve a 10 percent operating profit margin, a level that's generated by such retailers as Gap Inc. and Target Inc. But he noted that in the meantime, the financial operations will be "lumpy" as it digests the two companies.

A key part of increasing productivity at the stores will be in the cross selling of the brands, though company officials declined to be specific on which they would overlap. Besides Craftsman tools and Kenmore appliances, Sears' exclusive brands include Lands' End clothing. Kmart's brands include Martha Stewart (news - web sites), Jaclyn Smith and Joe Boxer. Lampert said that Sears could also benefit from Kmart's expertise in its pharmaceutical department and health and beauty products.

Lampert said that it is unlikely any Sears stores would be converted to Kmarts and that store closings are a possibility. "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," he said.

He also would not provide any details on possible layoffs, except to say, "There will be some head count changes that come out of this."

Sears shares soared $7.79, or 17 percent, to close at $52.99 Wednesday on the New York Stock Exchange (news - web sites) and Kmart shares climbed $7.78, or 7.7 percent, to close at $109 on the Nasdaq Stock Market.

Shares of Martha Stewart Living Omnimedia Inc. also rose more than 6 percent on the belief among investors that the deal could bring a larger-scale merchandising agreement with Sears. Currently, Martha Stewart Everyday brand is sold exclusively at Kmart in the United States, and at Sears Canada.

Under Wednesday's agreement, which was unanimously approved by both companies' boards of directors, Kmart shareholders would receive one share of new Sears Holdings stock for each Kmart share. Sears shareholders can choose $50 in cash or half a share of Sears Holdings stock. That portion of the deal values Sears shares at $11 billion, a 10.6 percent premium over its value at Tuesday's close.

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.

Sears Holding also created the office of the chairmanship, which consists of Lampert, Lacy and Aylwin B. Lewis, who was named president of Sears Holding Corp., CEO of Sears Retail. Last month, Lewis, formerly an executive at restaurant operator Yum Brands Inc., was named chief executive and president of Kmart. "

11-19-2004, 09:33 AM
It's talked of as a merger of equals, but some consider Kmart the swallower of the two. That's interesting because it retains the Sears name.

11-19-2004, 12:22 PM
Actually, I heard K-Mart and Sears will retain their present names with no immediate store closure plans.

However, a merger (different than what it use to mean) usually means "we do not think you are worth anything, so you are fired." In other words, the successor usualy cuts jobs. :Smiley297

11-19-2004, 12:37 PM
Actually, I heard K-Mart and Sears will retain their present names with no immediate store closure plans.

Sorry mranderson, I meant the parent company will be retaining the Sears name -- Sears Holdings Corporation.

11-21-2004, 02:23 PM
Well, at least K-Mart did make a profit in the last quarter.....first profit for the corporation since they filed Chapter 11. Hopefully Sears will help K-Mart out even more. Sears has the backing of Exxon, so they should be in good shape. I just fear one thing though...Sears doesn't seem to have it together themselves. I just hope they don't pull K-Mart down with them. For Sears, the only thing keeping them alive right now is their recent acquisition of Land End. That was a life saver for Sears. Heck, I never used to shop at Sears, and I even occasionally pop into Sears now just to check out their Lands End stuff.....of course the catalog is still has much more, but it's good to see Land End merchnadise in the stores.