U.S. Retailers Kmart, Sears to Merge in $11 Billion Deal

U.S. retailer Kmart, which emerged from bankruptcy protection only 18 months ago, and Sears, Roebuck and Co. announced today plans to merge into a new retail giant by March 2005, in a deal worth some $11 billion. With almost 3,500 retail stores, the new company, to be called Sears Holding Corp., will have $55 billion in sales annually and will be headed by Kmart chairman Edward Lampert.

From Agence France-Presse

With almost 3,500 retail stores, the new company, to be called Sears Holding Corp., will have $55 billion in sales annually and will be headed by Kmart chairman Edward Lampert.

“The combination of Kmart and Sears is extremely compelling for our customers, associates and shareholders as it will create a powerful leader in the retail industry,” said Lampert.

“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 added.

Under the terms of the agreement, which was unanimously approved by both companies’ boards of directors, Kmart shareholders are to receive one share of new Sears Holdings common stock for each Kmart share.

Sears, Roebuck shareholders are to have a choice between $50 in cash or 0.5 shares of Sears Holdings (valued at $50.61, based on Tuesday’s closing price of Kmart shares) for each Sears, Roebuck share.

The merger of the two companies was expected to generate cost savings and higher revenues of at least $500 million as the combined group benefited from greater efficiency in procurement, marketing, information technology and supply chain management.

Kmart emerged from Chapter 11 bankruptcy protection in May 2003 and appointed Lampert chairman, a hedge fund manager who held Kmart bonds.

After the reorganization, Lampert’s fund was left with over 50 percent of Kmart’s shares and control of four seats on the nine-member board of directors.

He is also a major shareholder in Sears as well other big U.S. retailers such as Office Depot and Payless Shoe Stores.

Sears and Kmart already did business with each other when at the end of June Kmart sold 54 stores to Sears, Roebuck and Co. for $621 million in order to shore up its balance sheet.

The deal marks a major shake-up in the battered U.S. retail industry and the end of an era at Sears, whose history goes back to 1886. In its early days the company supplied farmers in some of the wilder parts of the western United States with everything from fishing tackle to jewelry by mail order.

Sears Holdings will feature a powerful home appliance franchise as well as strong positions in tools, lawn and garden, home electronics, and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard.

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