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Kmart and Sears to Merge in $11 Billion Deal, Creating Nation's Third-Largest Retailer

Strategic Insights

— 2 min read

Kmart Holding Corp. is buying Sears, Roebuck and Co. in a surprise $11 billion deal aimed at helping the companies better compete with Wal-Mart and other big-box retailers. The new Sears Holdings Corp. would be the nation's third-largest retailer, with annual revenues of $55 billion and 3,500 outlets. The goal is to achieve a 10 percent operating profit margin, a level that's generated by such retailers as Gap Inc. and Target Inc. The merger is expected to close by the end of March 2005, subject to approval by Kmart and Sears shareholders, regulatory approvals, and customary closing conditions.

Key Takeaways:

  • The merger, which values Sears shares at $11 billion, is a 10.6 percent premium over their value at Tuesday's close.
  • Kmart shareholders will receive one share of new Sears Holdings stock for each Kmart share, while Sears shareholders can choose $50 in cash or half a share of Sears Holdings stock.
  • The combined company will be headquartered in Hoffman Estates, Illinois, and will have a significant presence in Troy, Michigan.
  • Edward Lampert, 42, Kmart's chief executive and chairman, will lead the new Sears Holdings Corp. board, which will be dominated by Kmart directors.
  • The deal is expected to result in $500 million in annual savings within three years through store conversions, back-office job cuts, and more efficient buying of goods.
  • The new company will have exclusive brands such as Craftsman tools and Kenmore appliances, as well as Kmart's Martha Stewart, Jaclyn Smith, and Joe Boxer brands.
  • The deal could bring a larger-scale merchandising agreement with Sears for Martha Stewart Living Omnimedia Inc.

Statistics:

  • The new Sears Holdings Corp. will have annual revenues of $55 billion.
  • The company will have 3,500 outlets nationwide.
  • Kmart has made a speedy financial turnaround since emerging from Chapter 11 bankruptcy protection in May 2003, posting a profit in each of the last four quarters.
  • Sears has approximately 600 stores in the United States.
  • The combination of Kmart and Sears will create a retail giant with a significant presence in the United States and Canada.

Sources:

  • "Kmart buys Sears in $11 billion deal," by The Associated Press, New York (no specific publication date mentioned)
  • "Sears Posts Third-Quarter Profit of $553 Million," by The Associated Press, New York (no specific publication date mentioned)
  • "Lampert Spins a Deal: Kmart and Sears Unite in $11 Billion Retail Merger," by Merchant Forecast, New York (no specific publication date mentioned)
  • "Sears, Roebuck and Co. history," by The Associated Press, New York (no specific publication date mentioned)
  • "Kmart Holding Corp. history," by The Associated Press, New York (no specific publication date mentioned)

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