Overview

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things."
Niccolo Machiavelli

Mergers often highlight and bring attention to companies that may have been overlooked by the masses and competitors alike. The new combined company can be a mountain weathering the storm of competition, a nimble cat pouncing on new ideas and opportunities, or a surprise to investors and professionals equally. Often there is some combination of each of these. The reasons of why one company is capable of acquiring another can be overshadowed in the glow of the new enterprise. In this GoldStar report we look at a Kmart Holding Corporation and what made it capable of its proposed merging with Sears, Roebuck and Co.

In January 2002, Kmart was in trouble which led to a Chapter 11 filing of bankruptcy. The Company exited Chapter 11 in May of 2003 with Mr. Edward Lampert at its head. Mr. Lampert was an assistant to Mr. Robert Rubin in the past (at Goldman Sachs); as well as being critical to the changes made to Autozone, Inc. (NYSE:AZO) in 1999 as a director, a position he still holds today. Since May 2003, Kmart has shed stores and real estate to bring it to 1,484 stores in 49 states as well as Puerto Rico, the Virgin Islands and Guam. Kmart maintains 60 supercenter stores and can be found in 286 out of 331 metropolitan areas in the U.S. With the slimmer size has come 13.79 billion dollars in sales, 801 million dollars in net profit and 2.56 billion in cash (as of Oct 27, 2004).

It was during the sale of Kmart stores, to Sears, that the seeds for the merger began. Sears, Roebuck and Co., (NYSE:S) has 2,350 stores with 870 being mall stores and revenues surpassing 24 billion dollars. Sears was started in the 1800’s as a mail-order company and opened its first retail store in 1925.

The proposed combined company will be called Sears Holdings Corp. and would have 55 billion dollars in sales with 3500+ stores. Strengths of the proposed combination include real estate, cost savings, and the increased distribution of various brands to new client bases. Statistics show that 48% of Americans who shop at mall retailers, never go to discount retailers. Some of the items that may be introduced to a new client base include: JOE BOXER, Martha Stewart, Jaclyn Smith and Thalia Sodi lines for Kmart and Kenmore, Craftsman, Maytag, Black&Decker and Lucy Pereda lines for Sears.

While all mergers are proposed for the benefit of shareholders and increased profits, not all succeed. Strong management, solid plans and excellent execution are required for a merger to work. As stated by Horace, "Life grants nothing to us mortals without hard work." The same can be said of mergers, and only time will tell which were the right choices.

Before making an investment in this security, we advice that you seek consultation with a qualified investment professional.Please read the disclaimer printed in this page.

Kmart Holding Corporation
3100 West Big Beaver Road
Troy, MI 48084

(P) (248) 463-1000

Website: www.kmart.com