Kmart buying Sears

Stravo · Post by **Stravo** » 2004-11-17 10:41am

Kmart buying Sears

Consumers could be getting mall-based alternative to discounters in $11 billion merger deal.
November 17, 2004: 9:34 AM EST

NEW YORK (CNN/Money) - Kmart Corp. is acquiring Sears, Roebuck & Co. in an $11 billion merger that aims to merge the best of both brands and create a low-priced shopping haven in malls.

Kmart's strength lies in apparel and home accessories, with such brands as Thalia Sodi, Jaclyn Smith, Joe Boxer and Martha Stewart Everyday products.

Sears' current line-up includes well-known clothing labels as Lands' End and its youth-oriented Apostrophe brand.

"Imagine going into Kmart and buying a Sears Craftsman tool set, or buying Kmart's Martha Stewart home products at Sears," said Marshal Cohen, chief retail analyst with market research firm NPD Group. "To Kmart shoppers, Lands' End may not mean anything, but now it will."

Sears' biggest strength is in home appliances, where it's still No. 1, despite declining market share, according to Cohen.

The company said it will continue to operate with both brand names but that some Kmart stores will shift to Sears locations as Sears continues to move away from mall locations.

"Kmart never had appliances and had no reputation for service," said Kurt Barnard, an independent retail analyst. "That's an honor that belongs to Sears. And Kmart has reputation for low prices, which Sears never has had."

Barnard said he's confident the combined companies will not hang onto all 3,500 stores they own between them.

Barnard said that even the combined company will face a challenge in competing with the more successful brands now in the market.

"The immediate impact is on Sears' other mall-based rivals such as JC Penney and not necessarily on Wal-Mart and Target," said Cohen.

Richard Hastings, retail analyst with Barnard Sands, said the merger should give a boost to both companies.

"The merger should increase the strengths and reduce the weaknesses of both retailers," Hastings said. "It could mean a big rollout of the Martha Stewart brand into Sears. Sears' weakness has been in apparel and Kmart could help revitalize that category. Kmart's has a lot of square footage in its stores that's not fully utilized. It can shift hot-selling appliances into that space."

Sears shares rose 12 percent in before-hours trading on Inet, while Kmart was up nearly 3 percent, according to Reuters.

The new company will be known as Sears Holdings and be based at Sears current headquarters in suburban Chicago. But both names will continue to be used on stores.

The companies say they're looking at $300 million in cost savings a year by the end of the third year after the merger. They also expect $200 million in improved annual profits from cross-promotion between the two companies.

They said cost savings should allow increased in earnings per share the first year after a special charge for merger-related costs. The deal is expected to close by March 2005.

Kmart on top?
While the deal is advertised as a merger of equals, details suggest it is tilted slightly towards a Kmart purchase of Sears.

Sears shareholders will be able to choose between $50 in cash or 0.5 share of Sears Holdings, which the companies said would be valued at $50.61, while Kmart shareholders would get one share of Sears Holding for each of their shares, which closed Tuesday at $101.22.

That means the deal provides about a 10.6 percent to 12 percent premium for Sears (Research) shareholders, while Kmart (Research) shareholders will see either no premium or a slight decline, if the shares are valued based on the cash offer to Sears shareholders.

Edward Lampert, chairman of Kmart who owns 52.6 percent of the company's shares according to its latest proxy, will be chairman of the new combined companies. Lampert also owns about 14 percent of Sears.

Edward Lampert will be the chairman of the combined Kmart-Sears.
Sears Chairman and CEO Alan Lacy will serve with Lampert and Kmart's current CEO Aylwin Lewis in the company's office of the chairman. Lewis, not Lacy, will be president of Sears Holdings and CEO of Sears Retail.

Kmart was forced to file for bankruptcy court protection in January 2002, but it has seen its stock soar since emerging from bankruptcy in May 2003. The stock gain has been seen as driven by the value of its real estate rather than its retail operations.

Sears saw its shares lost about 28 percent of its value from October 2003 through Nov. 4 this year. The next day shares leapt 23 percent on news that real estate investment firm Vornado Realty Trust had bought 7.9 million shares, or about a 4.3 percent stake in Sears.

"This certainly came as a total surprise, but maybe it shouldn't have," said Barnard. "I think we're looking at a real estate deal here."

Barnard points out that Sears has been buying stores from Kmart as it tried to move away from mall locations.

He said he thinks the combined companies will definitely shed more stores and could help them with competition with discounters such as Wal-Mart Stores (Research), the world's largest retailer,Home Depot (Research), the No. 2 retailer and leading home improvement retailer, and Target (Research), which will lose its place as the No. 3 retailer to the combined Sears Holding.

Wow....this is quite impressive but I never like the idea of so much consolidation of retail marketshare.

BlkbrryTheGreat · Post by **BlkbrryTheGreat** » 2004-11-17 11:05am

The consolidation is obviously a measure designed to help compete with Wal-Mart, which is currently the Juggernaut of the retail industry.

ReinnResauq · Post by **ReinnResauq** » 2004-11-17 11:16am

How is K-Mart coming up with the $$ to buy Sears?

Wicked Pilot · Post by **Wicked Pilot** » 2004-11-17 11:32am

As long as they don't rename it the 'K-Mart Tower'...

Joe · Post by **Joe** » 2004-11-17 11:43am

K-MART? They haven't been the most financially healthy company for the last couple of years, I'm surprised they had the cash.

Ma Deuce · Post by **Ma Deuce** » 2004-11-17 11:47am

Wicked Pilot wrote:As long as they don't rename it the 'K-Mart Tower'...

The Sears Tower isn't even owned by Sears anymore: It's currently owned by TrizecHahn Office Properties, which is based in Toronto.

Wicked Pilot · Post by **Wicked Pilot** » 2004-11-17 11:58am

Ma Deuce wrote: The Sears Tower isn't even owned by Sears anymore: It's currently owned by TrizecHahn Office Properties, which is based in Toronto.

Good, then it's safe for now. The thought of that building becoming a 110 story rat infested retail outlet stocked full of cheap and worthless crap and fat old women shoppin in spandex is just kind of overwhelming.

Post by **Sea Skimmer** » 2004-11-17 01:41pm

Ma Deuce wrote:
The Sears Tower isn't even owned by Sears anymore: It's currently owned by TrizecHahn Office Properties, which is based in Toronto.

Did Sears even occupy the tower? I seem to recall that they sold it before they even could move in or at least within a very few years.

Asst. Asst. Lt. Cmdr. Smi · Post by **Asst. Asst. Lt. Cmdr. Smi** » 2004-11-17 05:41pm

Sears gets bought out by K-Mart? The garage sale won't stand a chance now!

neoolong · Post by **neoolong** » 2004-11-17 06:18pm

Joe wrote:K-MART? They haven't been the most financially healthy company for the last couple of years, I'm surprised they had the cash.

Selling off their stores probably gave them some.

Post by **fgalkin** » 2004-11-18 02:00am

Watch Sears quality plummet.

Have a very nice day.
-fgalkin

Alex Moon · Post by **Alex Moon** » 2004-11-18 02:14am

fgalkin wrote:Watch Sears quality plummet.

Have a very nice day.
-fgalkin

I thought it already was. Didn't they stop the full lifetime replacement for hammers a few years ago?

Howedar · Post by **Howedar** » 2004-11-18 02:26am

Last I checked, Craftsman is Craftsman.

The Kernel · Post by **The Kernel** » 2004-11-18 05:03am

Joe wrote:K-MART? They haven't been the most financially healthy company for the last couple of years, I'm surprised they had the cash.

It's obviously a stock swap, and quite a healthy one too. Still, I agree that this probably isn't the wisest move for Kmart right now as they were on the verge of insolvency over the past few years and the last thing they need right now is more liability.

Patrick Degan · Post by **Patrick Degan** » 2004-11-18 06:50am

So... K-Mart now gets to market Kenmore appliances and Craftsman tools, and Sears gets to market Martha Stewart and K-Mart's share of cheap, slave-labour produced junk from China.

Kuroneko · Post by **Kuroneko** » 2004-11-18 07:07am

BlkbrryTheGreat wrote:The consolidation is obviously a measure designed to help compete with Wal-Mart, which is currently the Juggernaut of the retail industry.

It's actually the world's largest company now, not just of retail. This year, it has been found to be (according to Fortune) the most admired company as well. Whether or not this is a good thing is questionable.