Kmart, Sears to merge
Source Charles Brown
Date 04/11/19/02:40

Kmart, Sears to merge, create nation's third-largest retailer

Wednesday, November 17, 2004


CHICAGO - The discount retailer Kmart Holding Corp. is combining with one of
the most venerable names in U.S. retailing, Sears, Roebuck & Co., in an $11
billion deal that will create the nation's third largest retailer.

The company being created by the surprise combination announced Wednesday
would be known as Sears Holdings Corp., but will continue to operate the
Kmart and Sears stores under their current brand names.

The combined company is expected to have $55 billion in annual revenues,
2,350 full-line and off-mall stores, and 1,100 specialty retail stores. That
will mean it will trail only Wal-Mart Stores Inc. and Target Corp. 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.

Under the agreement, which was unanimously approved by both companies'
boards of directors, Kmart shareholders will receive one share of new Sears
Holdings stock for each Kmart share. Sears,

Roebuck 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.

Kmart chairman Edward Lampert will be the chairman of Sears Holdings, while
Sears CEO Alan Lacy will be vice chairman and CEO of the new company. The
new 10-member Sears Holdings board will have seven members from Kmart and
three from Sears.

"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,"
Lampert said in a press release.

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.

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
struggling retailer at its first three stores in metropolitan Salt Lake
City, Las Vegas and Chicago, in the suburb of Gurnee.

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. In fact, Kmart has sold 50
stores to Sears for $575 million as part of that strategy.

Earlier this month, it appeared that Sears could be shifting toward a
similar direction after the disclosure that Vornado Realty Trust, a real
estate investment trust, had purchased a 4.3 percent interest in the
department-store chain. That move left the impression that the value of
Sears' real estate holdings may be not be fully reflected in its stock
price. Since that Nov. 5 announcement, Sears' stock has jumped 25 percent.
It closed at $45.20 in trading Tuesday on the New York Stock Exchange.

Company officials said the merger would help make their properties more
profitable through a broader retail presence and improved operational
efficiency in areas such as procurement, marketing, information technology
and supply chain management.

"The combination will greatly strengthen both the Sears and Kmart franchises
by accelerating the Sears off-mall growth strategy and enhancing the brand
portfolio of both companies," Lacy said. "This will clearly be a win for
both companies' customers while significantly enhancing value for all

The merger will not affect agreements to carry home and fashion lines
including Martha Stewart Everyday, Lands' End and Sesame Street, the
companies said.

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