By Nicholas Bender
Kmart Holding Corp. and Sears, Roebuck and Co. announced Wednesday that a merger between the two companies has been finalized, creating the nation''s third-largest retailer with combined annual revenues of approximately $55 billion.
Sears Holdings Corp., as the new company will be known, will operate nearly 3,500 retail stores.
'It makes us more competitive and gives us a bigger presence,' said Stephen Pagnani, a manager of media relations for Kmart. 'It gives us a great opportunity to offer new products assortments and to enter new markets.'
As part of the deal, Kmart shareholders will receive one share of Sears Holdings common stock for each Kmart share. Fifty-five percent of Sears shares will be converted into Sears Holdings shares and 45 percent of Sears shares will be converted into cash, making the agreement worth about $11 billion to Sears shareholders, according to a Kmart press release.
The merger comes after months of financial struggles for both retail chains.
'Both have been broken in some sense,' Dan Hess, a retail analyst with Merchant Forecast, told the Associated Press. 'Kmart has to learn to survive in a Walmart world and Sears needs to learn to survive in a world of Home Depot and Lowe''s.'
Kmart, which filed for Chapter 11 bankruptcy in January 2002 after months of sluggish sales, recently emerged from restructuring.
Company executives helped improve Kmart''s financial health by closing about 600 under-performing stores, cutting expenses at the corporate level and developing more efficient distribution strategies, said Pagnani. The company also terminated 57,000 employees nationwide.
However, both Kmart and Sears spokespeople refrained from specifically elaborating on possible future store closings and layoffs that may accompany the merger.
'This whole merger is about growth, not consolidation,' said Bill Masterson, a Sears spokesperson. 'So that means there''ll be opportunities to manage and participate in that growth.'
Sears currently operates seven full-line stores in Utah, employing some 1,200 associates. Kmart has more than 1,500 locations nationwide and 144,000 employees.
Strategic restructuring of the merging companies will continue until March 2005, with some details of the merger, such as the name store locations will bear, to be determined. Consumers may then expect to see cross-merchandising between the retail chains. Craftsman tools, for example, may be available at Kmart locations, and consumers may see Martha Stewart products at Sears.
'It''s an opportunity for both of these national chains to bring more great brands to more customers,' said Masterson.
The merger will also allow both companies to better compete with retail giants Wal-Mart and Target.
'We need to have a low-cost structure to compete with bigger retailers,' Kmart chairman Edward Lampert told the Associated Press. Lampert will become the chairman of Sears Holdings Co. when the merger is complete.
Wal-Mart, however, has no immediate plans to change its low-price strategy in the face of the new competition created by the merger, said Sharon Weber, a Wal-Mart company spokesperson.
'We respect both companies, and they are certainly good competitors,' she said, but wouldn''t comment any further on how the merger could affect Wal-Mart sales.