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Kmart Holding Corp., Sears, Roebuck and Co. to Merge "
HOFFMAN ESTATES, Ill. -- Sears, Roebuck and Co. and Kmart Holding Corp.have signed a definitive merger agreement that will combine Sears and Kmart into a new retail company named Sears Holdings Corp. Sears Holdings will be the nation's third largest retailer, with approximately $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores.Sears Holdings will act as the holding company for the Sears and Kmart businesses, which will continue to operate separately under their respective brand names.Under the terms of the agreement, which was unanimously approved by both companies' boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears shareholders will have the right to elect $50 in cash or 0.5 shares of Sears Holdings (valued at $50.61 based on yesterday's closing price of Kmart shares) for each Sears share. Shareholder elections will be prorated to ensure that in the aggregate 55% of Sears shares will be converted into Sears Holdings shares and 45% of Sears shares will be converted into cash.The current value of the transaction to Sears shareholders is approximately $11 billion. The transaction is expected to be tax-free to Kmart shareholders and tax-free to Sears shareholders to the extent they receive stock. Sears Holdings will be headquartered here, and Kmart will continue to have a significant presence at its current headquarters in Troy, Mich. The combined company will benefit from improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management, officials said. Earlier today, Kmart reported net income of $553 million, or $5.45 per diluted share, for the 13 weeks ended Oct. 27 compared with a net loss of $23 million for the same period last year. Same-store and total sales decreased 12.8% and 13.7%, respectively, during the current period, and total sales were $4.4 billion versus $5.1 billion for the 13 weeks ended Oct. 29, 2003.The combination of the two companies is conservatively estimated to generate $500 million of annualized cost and revenue synergies to be fully realized by the end of the third year after closing. The transaction, after giving effect to estimated synergies, is expected to be significantly accretive to earnings per share in the first year before one-time restructuring costs, officials said. The companies expect to realize approximately $200 million in incremental gross margin from revenue synergies by capitalizing on cross-selling opportunities between Kmart and Sears' proprietary brands and by converting a substantial number of off-mall Kmart stores to the Sears nameplate in addition to the 50 Kmart stores Sears acquired earlier this year, officials said.The company expects to achieve annual cost savings of over $300 million principally through improved merchandising and non-merchandising purchasing scale as well as improved supply chain, administrative and other operational efficiencies. In addition, the combined company will complete a full store asset review as part of a plan to monetize non-strategic real estate assets as appropriate, officials said.Edward S. Lampert, chairman of Kmart, will be the chairman of Sears Holdings. He will be joined in an Office of the Chairman by Alan J. Lacy, current chairman and chief executive officer of Sears, and Aylwin B. Lewis, current president and CEOof Kmart. Lacy will be vice chairman and chief executive officer of Sears Holdings; Lewis will be president of Sears Holdings and chief executive officer of Sears Retail. Glenn R. Richter, currently executive vice president and chief financial officer of Sears, will be executive vice president and chief financial officer of Sears Holdings. William C. Crowley, currently senior vice president - finance of Kmart and a Kmart Board member will be executive vice president, finance and integration of Sears Holdings. Lampert, Lacy, and Lewis will join a 10-member Sears Holdings board of directors, which will include a total of seven members of the current Kmart board and three members of the current Sears board.ESL Investments and its affiliates, which are controlled by Lampert, have agreed to vote all Kmart and Sears shares they own in favor of the merger and to elect stock in the transaction with respect to their shares of Sears. 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. The company will have a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith, and Joe Boxer as well as the Apostrophe and Covington brands. It will also have Martha Stewart Everyday products, which are now offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. Kmart specialty retail stores will continue to carry their current lineup in proprietary home and fashion lines including Thalia Sodi, Jaclyn Smith, Joe Boxer, Martha Stewart Everyday, Route 66 and Sesame Street. The merger, which is expected to close by the end of March 2005, is subject to approval by Kmart and Sears shareholders, regulatory approvals and customary closing conditions.Visit Sears, Roebuck and Co.: www.sears.comVisit Kmart Holding Corp.: www.kmart.com "