Kmart and Sears Merge

November 19, 2004 - 11:29

Kmart Holding Corporation and Sears, Roebuck and Co. have signed a definitive merger agreement that will combine Sears and Kmart into a major new retail company named Sears Holdings Corporation. Sears Holdings will be the nation's third largest retailer behind Wal-Mart and Home Depot, 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.

In a Sears, Roebuck and Co. press release, Edward Lampert, chairman of Kmart and future chairman of Sears Holdings, said, "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."

In the same press release, Aylwin Lewis, current president and chief executive officer of Kmart and future president of Sears Holdings said, "Kmart has made great progress over the past 18 months to strengthen the organization in terms of profitability and product offerings. We believe the combination of Kmart and Sears will create a true leader in the retail industry — both as a key part of local communities and as a national presence.”

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.

“Sears Holdings will be headquartered in Hoffman Estates, Ill., and Kmart will continue to have a significant presence in Troy, Mich.,” read the press release. So, what does “significant presence” mean? No one really knows. “I think we’ll see quite a few changes in Kmart’s Troy operation in the near future and quite possibly the sale of their current headquarter property as they consolidate operations into Illinois,” said Stan Pohmer, president of Pohmer Consulting Group, Minnetonka, Minn. “Then I think we’ll see some 200-300 Kmart stores turned into Sears Grand stores, and if those Kmart-turned-Sears stores don’t have live goods, we’re in trouble.”

What does this merger mean for suppliers? “There’s no way this can affect Spring 2005,” said Pohmer. “The merger isn’t expected to close until the end of March. But, after that who knows. It will definitely be something we need to all keep our eyes on.”

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