Quick Stats

Quick Stats

    You are here

    Kmart To Buy Sears For $11 Billion

    Sears Holdings to have $55 billion in annual revenue, 3,500 retail stores.

    NEW YORK -- Discount retailer Kmart Holding Corp. will buy department store operator Sears, Roebuck & Co. in a surprise $11 billion deal that creates the third-largest U.S. retailer, reported Reuters.

    The new company, Sears Holdings, will have about $55 billion in annual revenue and nearly 3,500 retail stores.

    The companies, both of which have been struggling, said in a joint statement the merger, expected to be finalized by next March, was expected to generate significant cost savings but could also trigger sales of "non-strategic real estate assets."

    The deal came as a surprise to many analysts, who were uncertain of the motives behind the merger. "They both bring to the table diverse opportunities, but it's not clear if they are merging to make them more able to stand up to Wal-Mart's greater strength or if this is a real estate deal," said Kurt Barnard, president of the Retail Consulting Group.

    Sears shares have rocketed higher over the past two weeks after it was revealed that real estate investment trust Vornado Realty Trust Inc. had acquired a 4.3 percent stake in the company. Analysts said the deal highlighted the value of Sears's vast property holdings -- with the value of retail real estate rising -- and indicated other retailers could be potential buyers of real estate owned by Sears or other department stores.

    Hedge fund ESL Investments Inc., which is run by well-known investor Edward Lampert, is the largest shareholder in both Kmart and Sears. Lampert took Kmart out of bankruptcy last year and has sold off some of its real estate, building up a huge cash pile. Lampert will be chairman of Sears Holdings, while Alan Lacy, current chairman and CEO of Sears, will be CEO of the new company.

    Kmart's current CEO, Aylwin Lewis, will be president of Sears Holdings and CEO of Sears Retail. The new company's CFO will be Glenn Richter, who is now Sears' CFO.

    The deal has already received unanimous approval from both companies' boards of directors.

    Lampert said the combination of Kmart and Sears was compelling for customers, associates and shareholders. "It will create a powerful leader in the retail industry, with greatly expanded points of distribution, leading proprietary home and apparel brands, and significant opportunities for improved scale and operating efficiencies," he said in the statement.

    The merger is expected to generate $500 million in annual cost and revenue synergies, which will be fully realized after three years. It is also expected to boost earnings per share "significantly" in the first year, before restructuring costs. Sears Holdings will have its headquarters in Hoffman Estates, Ill., while Kmart will continue to have a significant presence in Troy, Mich.

    • About

    Related Content

    Related Content