My first company merger.

Akaran_D · Post by **Akaran_D** » November 17, 2004, 10:05 am

As announced earlier this morning (some people need sleep), KMart and Sears are going to merge, effective in March 2005. Now, as this is my first buisness merger (my cherry!) I'm wondering - how do things like this affect the standard floor guys? I've got a KMart and a Sears right next to each other here in my area, probably no more than a quickly moving 7 minute walk from one to the other. The sears store performs well, the KMart store not so hot. I'm an employee of the Sears store - generally speaking, how will this affect me?

Kmart buying Sears

Consumers could be getting mall-based alternative to discounters in $11 billion merger deal.
November 17, 2004: 8:00 AM EST

NEW YORK (CNN/Money) - Kmart Corp. is acquiring Sears, Roebuck & Co. in an $11 billion merger that some industry watchers say could shake up the mall-based landscape by creating a low-priced shopping haven for consumers.

"Consumers will end up being recipients of economies of scale through this deal. What this deal has done is put Kmart's proprietary brands in a mall," said Marshal Cohen, chief retail analyst with market research firm NPD Group.

"Imagine going into Kmart and buying a Sears Craftman tool set, or buying Kmart's Martha Stewart home products at Sears. This deal will take the loyal shoppers of each retailer and cross-pollinate them with familiar brands from each store," Cohen added. "To Kmart shoppers, Lands' End may not mean anything, but now it will."

No changes are expected immediately, but one retail analyst said he's confident the combined companies will not hang onto all 3,500 stores they own between them.

Indeed, the company said it will continue to operate with both brand names but that some Kmart stores will shift to Sears locations as Sears continues to move away from mall locations.

"Kmart never had appliances and had no reputation for service," said analyst Kurt Barnard. "That's an honor that belongs to Sears. And Kmart has reputation for low prices, which Sears never has had."

But he said that even the combined company will face a challenge in competing with the more successful brands now in the market.

Sears shares rose 12 percent in before-hours trading on Inet, while Kmart was up nearly 3 percent, according to Reuters.

The new company will be known as Sears Holdings and be based at Sears current headquarters in suburban Chicago. But both names will continue to be used on stores.

The companies say they're looking at $300 million in cost savings a year by the end of the third year after the merger. They also expect $200 million in improved annual profits from cross-promotion between the two companies.

They said cost savings should allow increased in earnings per share the first year after a special charge for merger-related costs. The deal is expected to close by March 2005.

While the deal is advertised as a merger of equals, details suggest it is tilted slightly towards a Kmart purchase of Sears.

Sears shareholders will be able to chose between $50 in cash or 0.5 share of Sears Holdings, which the companies said would be valued at $50.61, while Kmart shareholders would get one share of Sears Holding for each of their shares, which closed Tuesday at $101.22.

That means the deal provide about a 10.6 to 12 percent premium for Sears (Research) shareholders, while Kmart (Research) shareholders will see either no premium or a slight decline, if the shares are valued based on the cash offer to Sears shareholders.

Edward Lampert, chairman of Kmart who owns 52.6 percent of the company's shares according to its latest proxy, will be chairman of the new combined companies. Lambert also owns about 14 percent of Sears.

Sears Chairman and CEO Alan Lacy will serve with Lambert and Kmart's current CEO Aylwin Lewis in the company's office of the chairman. Lewis, not Lacy, will be president of Sears Holdings and CEO of Sears Retail.

Kmart was forced to file for bankruptcy court protection in January 2002, but it has seen its stock soar since emerging from bankruptcy in May 2003. The stock gain has been seen as driven by the value of its real estate rather than its retail operations.

Sears saw its shares lost about 28 percent of its value from October 2003 through Nov. 4 this year. The next day shares lept 23 percent on news that real estate investment firm Vornado Realty Trust had bought 7.9 million shares, or about a 4.3 percent stake in Sears.

"This certainly came as a total surprise, but maybe it shouldn't have," said Barnard. "I think we're looking at a real estate deal here."

Barnard points out that Sears has been buying stores from Kmart as it tried to move away from mall locations.

He said he thinks the combined companies will definitely shed more stores going forward and could help them with competition with discounters such as Wal-Mart Stores (Research), the world's largest retailer,Home Depot (Research), the No. 2 retailer and leading home improvement retailer, and Target (Research), which will lose its place as the No. 3 retailer to the combined Sears Holding.

Aabidano · Post by **Aabidano** » November 17, 2004, 10:20 am

Akaran_D wrote:I'm an employee of the Sears store - generally speaking, how will this affect me?

If you're a regular employee with good\great performance reviews at a location that's performing well you probably won't be able to tell anything happened in the short term. Management and infrastructure folks will take a serious whack in the next 6-18 months.

From watching a couple that have happened, the worse performer of closely spaced stores will likely close. Though some good performers will close as well if there are many stores in the area and good retail coverage can be obtained by two somewhat lesser performing stores.

Lynks · Post by **Lynks** » November 17, 2004, 10:22 am

I think it all depends on management and how much space/stock they will carry. What will most likely happen, from what I read, is that they will pick a location, then just expand both stores together. If they do things right, no one will get laid-off.

Aabidano · Post by **Aabidano** » November 17, 2004, 10:29 am

Missed this the first read:

"This certainly came as a total surprise, but maybe it shouldn't have," said Barnard. "I think we're looking at a real estate deal here."

Barnard points out that Sears has been buying stores from Kmart as it tried to move away from mall locations.

He said he thinks the combined companies will definitely shed more stores going forward and could help them with competition

Good for Sears employees in the next couple years, bad for slacking KMart employees, neutral for good KMart employees.

My sister-in-law manages two KMarts, I'll have to see what she thinks

Marbus · Post by **Marbus** » November 17, 2004, 11:29 am

I'm sure this will effect my company as well... personlly I'm getting tired of these mergers. Seebs you getting tired of mergers?

Marb

Akaran_D · Post by **Akaran_D** » November 17, 2004, 11:32 am

What's your company, Marb?

Chidoro · Post by **Chidoro** » November 17, 2004, 11:40 am

Obviously the pinch of Wal-Mart truly hurts both companies. Probably the only way they could even remotely compete.

Is your store in an indoor mall or a strip mall? If it's the former, you'll be fine, because it will introduce K-Mart product through an outlet not normally provided. If it's the latter, well

They are shedding stores. Right now, since you have two competing stores w/in a mile of each other, they will probably decide which location has the higher land value. It really doesn't matter how much business each store is doing to be honest. If they deem the K-Mart local is higher valued, you'll probably see your store go by the wayside.

K-Mart is valued for it's land in this deal(just like McDonalds if you can believe it) and Sears is valued for it's store front.

Akaran_D · Post by **Akaran_D** » November 17, 2004, 11:43 am

I'm at a mall store, which bodes ill for me, I know.
I'd like a higher paying job elsewhere, but currently, this place is great for padding my resume (gotten a number of awards for customer service so far) and it's close enough home that I can walk back if needed (which is nice, seeing as I rely on others for transportation..)

Chidoro · Post by **Chidoro** » November 17, 2004, 11:44 am

Then don't worry about it. Shedding the fat can take years.

Akaran_D · Post by **Akaran_D** » November 17, 2004, 11:46 am

I'm now debating printing out a little 'K' sign to attach to my sears nametag.. hm.

Tenuvil · Post by **Tenuvil** » November 17, 2004, 12:14 pm

Kmart has apparently turned around very very quickly after their bankruptcy a couple years ago. I'm very surprised by this seeing as the main reason they closed 40% of their stores was because of their cash position.

Tenuvil · Post by **Tenuvil** » November 17, 2004, 12:23 pm

oh Akaran,

MERGERS SUCK ASS

I've worked for many companies since I graduated that have been merged, divested or otherwise combined:

Travelers -> MetraHealth divestiture
MetraHealth -> United HealthCare purchase
United HealthCare -> Uniprise divestiture
Coopers & Lybrand -> PricewaterhouseCoopers merger

Mergers and divestitures can lead to lots of bad morale issues. In almost every case morale plummeted after a merger for various reasons, mostly because management lied about what would happen to staff post merger but also because of power struggles and weird matrix-y reporting structures post merger.

Assimilating two dissimilar corporate cultures can lead to issues as well. In the C&L -> PwC merger, we were told to dispose of all promotional items with the old firm's name on it and were given new stuff with the new name and logo. This helped a lot in getting people feeling like they all were on the same team.

Always remember that which does not kill you makes you stronger.

Seebs · Post by **Seebs** » November 17, 2004, 1:23 pm

Marb,

If I get another mother fucking project like this last mother fucking project where most of the mother fucking people from the client side leave during the mother fucking project then yes, I will be tired of mother fucking merger.

Eventually everything will just be Exxon and we'll all be okay.

Sabek · Post by **Sabek** » November 17, 2004, 2:42 pm

In the middle of a huge merger myself atm. It pretty much sucks. It is better if you are on the side that things are moving too, but still sucks.

Rekaar. · Post by **Rekaar.** » November 17, 2004, 4:51 pm

The only reason companies merge is to be more competitive. What this means to you is that your company is not taking the beating from Walmart lying down. At least they're trying to stay afloat I guess (and you with it)

Voronwë · Post by **Voronwë** » November 17, 2004, 5:54 pm

i think we've finally stopped paying for the AOL / Time Warner merger over the last year. but that was the worst one in human history. literally it was the worst one ever

i sure can't wait for my TWX stock options to go above that $48 strike price!!!!!!! (been trading at around $17 all year)

masteen · Post by **masteen** » November 18, 2004, 2:49 pm

Let me be the first to say

Shop smart. Shop S-Mart.

Sylvos · Post by **Sylvos** » November 18, 2004, 2:51 pm

masteen wrote:Let me be the first to say

Shop smart. Shop S-Mart.

YES MASTEEN HELL YEAH

Sylvos · Post by **Sylvos** » November 18, 2004, 2:54 pm

Sylvos wrote:
masteen wrote:Let me be the first to say

Shop smart. Shop S-Mart.

YES MASTEEN HELL YEAH

BRILLIANT!

VeeshanVault

My first company merger.

My first company merger.

Re: My first company merger.