AFP: 11/17/2004
NEW YORK (AFP) - Kmart, which emerged from bankruptcy protection only 18 months ago, and Sears, Roebuck and Co. announced a surprise 11 billion dollar merger that will create the United States' third biggest retail group.
News of the merger helped boost the stock market. World retail giants Wal-Mart and Home Depot saw their shares fall but Wal-Mart's number one status is not yet under threat.
With almost 3,500 retail stores, the new company, to be called Sears Holding Corporation, will have 55 billion dollars in annual sales and be headed by Kmart chairman Edward Lampert.
The two sides said they hoped to make 500 million dollars in savings a year from 2008 through the merger, which they aim to finish by March.
Kmart only came out of bankruptcy protection in May 2003 after being rescued by Lampert, who has been compared to US master investor Warren Buffett. Lampert was on the front cover of the latest Business Week magazine.
After the reorganisation, Lampert's fund was left with over 50 percent of Kmart's shares and controls four seats on the nine-member board of directors.
He is also a major shareholder in Sears as well other big US retailers such as Office Depot and Payless Shoe Stores.
"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 in a statement.
"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 agreement, which was unanimously approved by both boards, 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 dollars in cash or 0.5 shares of Sears Holdings (valued at 50.61 dollars, based on Tuesday's closing price of Kmart shares) for each Sears, Roebuck share.
Kmart has 144,000 workers and 1,500 stores across the United States.
Sears employs 201,000 people in the United States and Canada and has almost 2,000 stores.
At the end of June, Kmart sold 54 stores to Sears for 621 million dollars in order to shore up its balance sheet.
The new deal marks the a major shake-up in the battered US 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 jewellery by mail order.
But the retail market is now dominated by Wal-Mart with its 256 billion dollar turnover in 2003, more than one million staff in the United States and more than 3,600 stores. It also employs more than 300,000 people in stores in nine other countries.
Home Depot had sales of 64.8 billion dollars in 2003 from its 1,700 stores in the United States, Canada, Mexico and Puerto Rico.