Would Sears and Kmart Be Perfect Together?

Mar 27, 2003

By George Anderson

A Detroit Free Press article questions where Edward Lampert plans on
taking Kmart and Sears.

For those not familiar, Mr. Lampert’s company, ESL Investments, will be the
largest shareholder of Kmart stock once the retailer emerges from Chapter 11.

According to the Free Press, “Kmart insiders say Lampert is deeply involved
in turning around the retailer. He has at least two to three lengthy conference
calls a week with the company’s chief executive, Julian Day, and participated
in a number of meetings with the executive team.”

ESL Investments is also the second largest holder of Sears shares.

So, what might Mr. Lampert have planned for Kmart and Sears? The analysts,
who spoke with the Free Press said:

  1. Mr. Lampert may see Kmart’s and Sears’ primary value being real estate.
    In essence, selling the leases would be more profitable than keeping stores
  2. Kmart may be liquidated. Based on the price of purchase, it may be possible
    for Mr. Lampert to “recoup his investment and make a profit” by taking this
  3. A merger between Kmart and Sears. Each would benefit as Kmart could now
    sell Sears’ brands such as Kenmore and Sears would begin selling Martha Stewart’s

Sean Egan, managing director, Egan-Jones Ratings Co., sees value in the merger
approach. “He can make the argument of economies of scale, hope to raise additional
equity and be cashed out that way. It would be unreasonable for any decent investor
not to consider that.”

Moderator’s Comment: Does Edward Lampert’s and ESL
Investments’ involvement mean that the futures of Kmart and Sears are intertwined?
What do you think are likely future scenarios for the two chains?

Here is how Howard Davidowitz, chairman, Davidowitz &
Associates, assesses Mr. Lampert’s interest in Kmart and Sears. “He’s a man
who made a fortune so he’s not to be underestimated, but I disagree, I think
these two investments are both insane.” [George
Anderson – Moderator

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