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Kmart to Buy Sears In $11 Billion Deal

Kmart lost $3.2 billion in its fiscal 2003, but reported its fourth consecutive profitable quarter yesterday. Sears reported a 2003 profit of $3.4 billion, but a loss of $867 million for the first nine months of this year.

Both chains have reported sluggish same-store sales, an important measure of retail success that reflects sales growth within stores open for more than a year.


_____Related Article_____
A Pair of Dethroned Kings (The Washington Post, Nov 18, 2004)
_____Graphic_____
A Long History
_____Multimedia_____
Video: The Washington Post's Jerry Knight talks about the details surrounding the merger of Sears and Kmart.
_____Live Discussions_____
Transcript: New York University professor Yakov Amihud was online to answer your questions on corporate mergers.
Transcript: Hedrick Smith discussed Frontline's examination of the connection between American job losses and soaring Chinese exports -- Wal-Mart.
_____Story Archive_____
Citigroup to Buy Sears Credit Unit (The Washington Post, Jul 16, 2003)
Kmart Emerges From Bankruptcy (The Washington Post, May 7, 2003)
Sears's New Catalogue: Chain Buys Lands' End (The Washington Post, May 14, 2002)
_____On the Web_____
Merger Press Release
Kmart Fiscal 2004 Third-Quarter Earnings Report (Nov. 17, 2004)
_____Company Research_____
Sears Roebuck & Co: Stock quote, company profile and more.
KMart Holding Corporation: Stock quote, company profile and more.
Kmart and Sears: Company Histories and Timelines (Associated Press, Nov 17, 2004)

Neither chain is regarded as a leader in its retail territory -- department stores for Sears and discounters for Kmart -- but industry analysts say the two chains can fill each other's gaps. Kmart, for example, has proved successful in apparel and home goods, driven by the success of its exclusive Martha Stewart Everyday line, said Anne Brouwer, a partner at McMillan Doolittle LLP, a New York retail consulting firm.

Both of those areas are relatively weak at Sears, Brouwer said. At the same time, Sears has a strong reputation for appliances and tools, a weakness for Kmart.

Company executives said they expect the combined companies to generate $500 million in "synergies," or cost savings, within three years, through cross-selling brands, converting some Kmarts to Sears stores and selling off underperforming stores.

For Sears, which has 870 mall-based stores, the merger would create an opportunity to migrate into locations now held by Kmart. Mall attendance is flagging across the country, analysts say, but suburban strip malls are thriving -- driven by the growth of companies like Wal-Mart, Target and Home Depot.

There are 30 Sears specialty and department stores and 10 Kmarts in the Washington region.

Executives said they plan to initially convert several hundred Kmart stores into Sears formats, but they did not rule out converting more.

Under the terms of the merger, Lambert, chairman of Kmart, would be the chairman of Sears Holdings. Alan J. Lacy, chairman and chief executive of Sears, would be vice chairman and chief executive officer of the new entity.

As approved by both firms' boards of directors, Kmart shareholders would receive one share of Sears Holding common stock, valued at $50.61 by the company as of Tuesday, for each share of Kmart stock. Sears shareholders would have a choice of either $50 in cash per share or 0.5 share of Sears Holding.

Yesterday, Sears stock jumped $7.79, up 17 percent, to $52.99. Kmart shares rose $7.78, or 8 percent, to $109.

Washington Post staff writer Neil Irwin and researcher Richard Drezen contributed to this report.


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