Sears and Kmart in $11bn merger
US retailers to drive for market share
US retailers Sears Roebuck and Kmart have agreed an $11bn merger that will create the third biggest retail operation in the US.
The combination of Sears’ mid-market department stores and Kmart’s discount chain will operate almost 3,500 stores with $55bn in annual sales. The enlarged business will be more strongly placed to challenge market leader Wal-Mart as well as number two general merchandise retailer Target.
Sears and Kmart will be combined into a new retail company called Sears Holdings Corporation. Wal-Mart, as well as DIY retailer Home Depot, will outrank it in terms of US sales. After three years, the enlarged business expects to gain $500m a year in cost savings from improved operational efficiency in areas such as buying, marketing, IT and supply chain management.
Kmart has reorganised itself after a period which saw it file for bankruptcy protection in 2002, closing more than 300 stores and laying off more than 35,000 employees before posting its first profitable quarter for three years in March this year.
Kmart shareholders will receive one new Sears Holdings stock for each Kmart share, while Sears Roebuck shareholders will have the right to $50 in cash or 0.5 Sears Holdings shares for each Sears Roebuck share.
Edward Lampert, chairman of Kmart, will be the chairman of Sears Holdings. Alan Lacy, chairman and chief executive officer of Sears, will be vice chairman and chief executive officer of Sears Holdings, while Aylwin Lewis, current president and chief executive officer of Kmart, will be president of Sears Holdings and chief executive officer of Sears Retail.
A ten-member Sears Holdings board of directors will include seven members of the current Kmart board and three members of the current Sears, Roebuck board.
Lampert said: “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, with greatly expanded points of distribution, leading proprietary home and apparel brands and significant opportunities for improved scale and operating efficiencies. 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.”
Lacy said, “The combination will greatly strengthen both the Sears and Kmart franchises by accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies. This will clearly be a win for both companies’ customers while significantly enhancing value for all shareholders.
“We will have a total combined store base of nearly 3,500 stores and the leading service organization in the industry capable of a major expansion to serve the needs of existing Kmart and Sears customers.”
Lewis 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.
[img r]kmart.jpg[/img]”Together, we will further enhance our capabilities to better serve customers by improving in-store execution and ultimately transforming the customer’s in-store experience.”
The new business will aim to capitalise on cross-selling opportunities between Kmart and Sears’ own brands, and will convert a ‘substantial’ number of off-mall Kmart stores to the Sears fascia, in addition to 50 Kmart stores Sears acquired earlier this year. The merger is expected to be complete by the end of March 2005.
