Kmart Holding Corp. and Sears, Roebuck and Co. announced Wednesday they have signed a definitive merger agreement that will combine Sears and Kmart into a major new retail company named Sears Holdings Corp. Sears Holdings will be the nation’s third largest retailer, with approximately $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores.
Sears Holdings will be headquartered in Hoffman Estates, Ill., and Kmart will continue to have a significant presence in Troy, Mich. The combined business will have a broader retail presence and scale with nearly 3,500 retail stores. The combined company also plans to improve operational efficiency in areas such as procurement, marketing, information technology and supply chain management.
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Under the terms of the agreement, which was unanimously approved by both companies’ boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears, Roebuck shareholders will have the right to elect $50.00 in cash or 0.5 shares of Sears Holdings (valued at $50.61 based on yesterday’s closing price of Kmart shares) for each Sears, Roebuck share.
Shareholder elections will be prorated to ensure that in the aggregate 55 percent of Sears, Roebuck shares will be converted into Sears Holdings shares and 45 percent of Sears, Roebuck shares will be converted into cash. The current value of the transaction to Sears, Roebuck shareholders is approximately $11 billion. The transaction is expected to be tax-free to Kmart shareholders and tax-free to Sears, Roebuck shareholders to the extent they receive stock.
Edward S. Lampert, chairman of Kmart stated, “The combination of Kmart and Sears is extremely compelling for our customers, associates and shareholders as it will create a powerful leader in the retail industry, with greatly expanded points of distribution, leading proprietary home and apparel brands and significant opportunities for improved scale and operating efficiencies. The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own.”
Sears Holdings will feature a powerful home appliance franchise as well as strong positions in tools, lawn and garden, home electronics, and automotive repair and maintenance. Kmart specialty retail stores will continue to carry their current lineup in proprietary home and fashion lines. The combination of the two companies is conservatively estimated to generate $500 million of annualized cost and revenue synergies to be fully realized by the end of the third year after closing. The merger, which is expected to close by the end of March 2005, is subject to approval by Kmart and Sears shareholders, regulatory approvals and customary closing conditions.
It will also have Martha Stewart Everyday products, which are now offered exclusively in the U.S. by Kmart and in Canada by Sears Canada.
