Kmart will focus on building its private brands
A jubilant Kmart is to extricate itself from bankruptcy two months earlier than planned.
The discount retailer will emerge in two weeks' time, with 600 fewer stores and an 80% reduction in its debts.
"Let me say how jubilant I am, how jubilant everybody at Kmart is," said chief executive Julian Day, who will receive a $1m bonus for his part in the restructuring.
Dwindling sales and rising debts meant Kmart was forced to seek protection from its creditors in January 2002 in what was the largest retail bankruptcy in US history.
The announcement comes after four days of negotiating in court, when both creditors and competitors raised objections to Kmart's survival plan.
The reorganisation leaves private shareholders with nothing, although banks and bondholders will be issued with new shares.
ESL investments, a $5bn hedge fund, has now become the largest shareholder in Kmart, with a 49% stake.
"Kmart will emerge a stronger company, with a healthy balance sheet, a store-centric philosophy and the right leadership to revitalise this organisation," said ESL's chairman Edward Lampert.
The company reported a loss of $3.2bn (£2bn) last year, but claims it can return to profitability in 2004.
It says it will focus on offering low prices on certain items, building up its private brands and filling its shelves with the right products.
Ongoing problems with its suppliers meant that Kmart's shelves were left empty in the period before it was declared bankrupt.
In addition to Kmart's other troubles, two former executives have been charged with a $42m accountancy fraud.