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Last Updated: Wednesday, 17 November, 2004, 22:11 GMT
Retail giants merge in $11bn deal
Kmart chairman Edward Lampert announces the merger
The merger was orchestrated by Kmart chairman Edward Lampert
US department store operator Sears and discount retailer Kmart have agreed to merge in a $11bn (5.9bn) deal.

The move, which won unanimous approval from both companies' directors, will create the third largest retailer in the US with annual revenues of $55bn.

"The merger will enable us to... produce a higher return than either company could achieve on its own," said Kmart chairman Edward Lampert.

Kmart emerged from bankruptcy protection in May 2003.

The discount retailer, which closed more than 300 stores and laid off more than 35,000 employees to turn the business around, posted its first profitable quarter in three years in March.

Shares surge

The two sides said they hoped the merger would save the new company $500m a year starting from 2008.

Kmart store
Third largest US retailer after Wal-Mart and Home Depot
Nearly 3,500 stores
Combined workforce of 345,000 in US and Canada
Kmart has annual sales of about $23bn, Sears has annual revenue of about $41bn
Sears founded in 1886, Kmart in 1962

Shares in both companies rose sharply on the US markets on Wednesday. Kmart climbed 8%, while Sears jumped nearly 17%.

Mr Lampert will stay on as chairman of the new retail giant, which will be known as Sears Holdings. His hedge fund, ESL Investment, is the largest shareholder in Kmart and Sears.

Sears chief executive Alan Lacy will be vice-chairman and chief executive of the new company.

Kmart shareholders will receive one share of the new Sears Holding common stock for each Kmart share. Sears shareholders are being offered the choice of $50 in cash or half of a share of Sears Holdings for each of their shares.

Key ingredient missing?

Analysts' reaction to the news was split.

"This is good news for the group and obviously there's value here, and any time value is added to the equation, it's positive," said Peter Cardillo, chief market analyst and strategist at SW Bach.

Gary Ruffing, head of retail services at management consulting group BBK said the deal "looms good for both businesses overall, but in the short-term it will cost jobs".

But Darrell Rigby, head of the retail practice at Bain & Co, was more sceptical.

"The problem is, they are missing a key ingredient, sales growth. They haven't been able to solve their sales problems separately. Can they solve them jointly?" he said.

The deal is expected to be finalised by next March.

Sears sees results take a tumble
22 Jul 04 |  Business
Kmart stays in the red
16 Jun 03 |  Business
Kmart emerges from bankruptcy
07 May 03 |  Business
Jubilant Kmart exits bankruptcy
23 Apr 03 |  Business
Kmart sees hope in massive loss
24 Mar 03 |  Business
Kmart makes record job cuts
14 Jan 03 |  Business

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