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Fri, Nov 19, 2004 - Page 12 News List

Kmart and Sears announce merger

RETAIL In a deal worth about US$11 billion the two firms will combine to form a new company called Sears Holdings Corp with a network of almost 3,500 stores

NY TIMES NEWS SERVICE

Kmart Holding Corp and Sears, Roebuck and Co said Wednesday that they are merging to form a new retail company called Sears Holdings Corp that will be the US' third-largest retailer with about US$55 billion in annual revenues.

The agreement, worth about US$11 billion, weaves together the companies' networks of 3,450 stores, of which 1,100 are specialty retail, according to a statement posted on the Sears Web site.

benefits

"The combined business will have a broader retail presence and improved scale through a national footprint of nearly 3,500 retail stores," the statement said.

The merger will also benefit from improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management, it added.

The Kmart and Sears stores will continue to operate under their current names.

performance

Sears has been trying to turn around its performance for several years but has had limited success. As it has redesigned stores and added to its merchandise in hopes of increasing sales, competitors like Wal-Mart Stores and Lowe's have snatched away its customers.

Kmart in August posted its third profitable quarter in a row, even as sales declined 15 percent. Bolstered by its real estate holdings -- some 1,400 stores around the country -- it was in the odd position of losing ground in consumer sales while generating significant profits as a company.

The merger is expected to close by the end of March, and is subject to approval by shareholders. The company will have its headquarters at the Sears headquarters in the Chicago suburbs, but the statement said it would maintain a "significant presence" in Troy, Michigan, where Kmart is based.

The board of directors of both companies unanimously approved the terms of the agreement, under which shareholders will receive one share of new Sears Holdings common stock for each Kmart share.

Sears, Roebuck shareholders will have the right to elect to have US$50 in cash or 0.5 shares of Sears Holdings for each Sears, Roebuck share.

The chairman of Kmart, Edward Lampert, will be the chairman of Sears Holdings.

"This is something we have been working on very diligently," Lampert said at a news conference in New York. "This is going to be an enormous undertaking."

expanded distribution

Lampert, who is the founder of the investment company ESL Partners, said in the statement that the merger would create a "powerful leader" in the retail industry with expanded distribution points and better opportunities for efficiency.

"The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own," he said.

He said that a low cost structure was needed to compete with their biggest competitors. The immediate focus of the two companies would be the upcoming holiday season, he added. Then they will "go forth from there," according to Aylwin Lewis, the president and chief executive officer of Kmart.

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