Troy, MI, Jan. 27--Kmart Corp. has filed its reorganization plan in federal bankruptcy court, saying its turnaround will be bankrolled primarily by two investors. The five year plan calls for a return to profitability in fiscal 2004 and focuses on Kmart becoming ³the store of the neighborhood.²
ESL Investments, a hedge fund owned by Connecticut millionaire Edward Lampert, and the New York based Third Avenue Trust will invest at least $293.4 million in exchange for new stock, according to the plan filed Friday in Chicago.
In a separate filing, the retailer said there is evidence of mismanagement by some former executives. The company is investigating $28.8 million in retention loans given to 25 top executives and the use of the company's fleet of jets by executives.
Kmart is also under investigation by the Securities and Exchange Commission and the FBI.
Kmart, which has struggled to compete with Wal-Mart's low prices and Target's hipper merchandise, filed for Chapter 11 a year ago. The retailer has said it wants to exit bankruptcy protection by April 30.
The company intends to cancel its current stock and will reissue 500 million shares of common stock at a penny each and 20 million shares of preferred stock. Creditors will get shares as payment for what they're owed.
ESL's Lampert, 40, drew headlines earlier this month when he was kidnapped from a parking garage in Greenwich, Connecticut. He was released unharmed two days later. Four suspects were arrested in the case.
Forbes magazine has pegged Lampert's worth at more than $800 million.
The reorganization plan is subject to bankruptcy court approval. A hearing is scheduled for February 25.
The company already has taken several steps toward its restructuring, including closing stores, cutting jobs and naming a new chief executive, Julian Day.
Kmart shut 283 stores last year and plans to close 326 more. Some 59,000 jobs will be lost.
