Retail

Conference call report: Sears merges with Kmart in $11 billion deal

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The boards of directors for Kmart Holding Corp. and Sears, Roebuck & Co. have unanimously approved the merging of the two major retailers in an $11 billion deal. The new company, if approved by the shareholders of both retailers, will be known as Sears Holdings Corp.

In a conference call held by the two companies earlier today in New York City, Kmart Chairman Edward Lampert said the stores will be run under the Kmart and Sears nameplates, although Kmart stores will be turned into Sears outlets "where appropriate."

(Sears CEO Alan Lacy estimated that there will be "several hundred" Kmart stores turned into Sears outlets.)

"I think it´s pretty obvious that scale is very important to compete effectively," Lampert said. "We have to have a low cost structure to compete with our biggest competitors."

That would be major retailers like Wal-Mart Stores Inc., the world´s largest retailer, and Target Corp. Both are opening stores at a faster rate than either Kmart or Sears.

The new combined Kmart-Sears company is expected to be the third-largest retailer in the United States with about $55 billion in annual revenues.

Lacy said Sears´ store count is the same today as it was in 1970. Lampert said the promotional and marketing costs of Sears "just to keep up" with ever-expanding competitors was close to $1 billion a year. Some of that money now can be re-directed to other opportunities.

"The financial dimensions are very, very significant," said Lampert, who pointed out that between the companies, sales, general and administration costs are roughly $12 billion and cost of goods sold is about $40 billion a year. He said there is a lot of opportunity to cut costs, which could approach $300 million a year.

Lacy said savings should be fully realized in three years.

Sears Holding will have 2,371 full-line and off-mall stores, plus another 1,100 to 1,300 specialty retail stores currently under Sears´ supervision. The new strategy of the company will be to focus on off-the-mall outlets such as Sears Grand stores (there are four at this time).

The full-line stores include 870 Sears on-the-mall stores, which feature Sears Auto Centers. The centers offer Goodyear, Bridgestone, Michelin, BFGoodrich, Sumitomo, Kumho and Falken major brands and the Sears Roadhandler private brand.

Lampert will be the chairman of Sears Holdings, while Lacy will be vice chairman of the board and CEO of the new company. Aylwin Lewis, CEO and president of Kmart Holding, also will have a significant position in the new company, which will be headquartered at Sears´ headquarters in the Chicago, Ill., suburb of Hoffman Estates.

According to Lampert, Kmart shareholders will receive one share of new Sears Holdings stock for each Kmart share. Sears shareholders have one of two choices: They can either accept $50 in cash or half a share of Sears Holdings stock for each share of Sears stock.

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