Troy, MI & Hoffman Estates IL, November 17--Kmart Holding and Sears have signed a definitive merger agreement that will combine Sears and Kmart into a major new retail company named Sears Holdings Corporation.
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, IL, and Kmart will continue to have a significant presence in Troy, MI. The combined business will have a broader retail presence and improved scale through a national footprint of nearly 3,500 retail stores.
The companies expect to realize about $200 million in incremental gross margin from revenue synergies by capitalizing on cross-selling opportunities between Kmart and Sears' proprietary brands and by converting a substantial number of off-mall Kmart stores to the Sears nameplate in addition to the 50 Kmart stores Sears acquired earlier this year.
The company expects to achieve annual cost savings of over $300 million principally through improved merchandising and nonmerchandising purchasing scale as well as improved supply chain, administrative and other operational efficiencies. In addition, the combined company will complete a full store asset review as part of a plan to monetize nonstrategic real-estate assets as appropriate.
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, will be the chairman of Sears Holdings. He will be joined in an office of the chairman by Alan J. Lacy, current chairman and chief executive officer of Sears, and Aylwin B. Lewis, current president and chief executive officer of Kmart.
Mr. Lacy will be vice chairman and chief executive officer of Sears Holdings; Mr. Lewis will be president of Sears Holdings and chief executive officer of Sears Retail. Glenn R. Richter, currently executive vice president and chief financial officer of Sears, Roebuck, will be executive vice president and chief financial officer of Sears Holdings. William C. Crowley, currently senior vice president - finance of Kmart and a Kmart Board member will be executive vice president, finance and integration of Sears Holdings.
Messrs. Lampert, Lacy, and Lewis will join a ten member Sears Holdings board of directors, which will include a total of seven members of the current Kmart board and three members of the current Sears, Roebuck board. Sears Holdings will act as the holding company for the Sears and Kmart businesses, which will continue to operate separately under their respective brand names.
Mr. Lampert said, "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."
ESL Investments and its affiliates, which are controlled by Mr. Lampert, have agreed to vote all Kmart and Sears, Roebuck shares they own in favor of the merger and to elect stock in the transaction with respect to their shares of Sears, Roebuck.
