Shareholders OK acquisition

Many retired Sears workers objected to the acquisition.
HOFFMAN ESTATES, Ill. (AP) -- Shareholders signed off Thursday on Kmart Holding Corp.'s $12.3 billion acquisition of Sears, Roebuck and Co., clearing the way for the two struggling rivals to combine into the nation's third-biggest retailer.
Final approval came in back-to-back meetings at Sears' headquarters, and company officials said the deal would close Thursday afternoon.
Barring a last-minute hitch, Sears' sprawling headquarters will now house a new retail powerhouse named Sears Holdings Corp. with $55 billion in revenue, 3,800 stores and an uncertain future under Edward Lampert -- Kmart's chairman and the billionaire hedge-fund manager who engineered the deal.
Shareholders
Sixty-nine percent of Kmart shareholders voted to approve the deal in results announced at a brief and sparsely attended meeting at the headquarters building. Less than two hours later, Sears said its shareholders also voted 69 percent in favor of the deal.
"The merger is now approved," Sears CEO Alan Lacy told the crowd of about 200 people, many of them retired Sears employees who protested the deal and the 119-year-old retailer's acquisition by Kmart.
"Sears Holdings intends to be a great company and a great retailer," said Lacy, responding to their angry complaints and fears the department-store company's assets would be sold off to raise cash.
Lampert, who employed just that strategy in rescuing Kmart from bankruptcy, focused instead on the combined company's retail prospects. "It's an opportunity to transform two companies that once were great -- to transform them into a great company relative to the 21st century," Lampert told reporters after the meetings.
Stocks
In a stock plunge Lacy attributed to "technical reasons" because of the previously agreed price of $50 per share, Sears shares fell $6.64, or nearly 12 percent, to $50.16 in afternoon trading on the New York Stock Exchange. Kmart shares rose $4.02, or 3.2 percent, to $128.85 on the Nasdaq Stock Market.
"The market in general has strongly supported the merger," Lacy said, referring to double-digit percentage gains by both companies' stocks since the Nov. 17 announcement, when the deal was valued at $11 billion.
The company said that because of timing restrictions on settlements, anyone trading Sears shares on the NYSE Thursday could not elect to choose stock in the new company for their shares -- one of the two options available. As a result, those shares will receive the cash consideration in the merger of $50 per share.
Thursday marked the last day of trading for Sears' stock, Lacy said. The merged company is expected to begin trading on the Nasdaq on Monday.
No. 3 spot
The deal creates the No. 3 U.S. retailer and brings together Sears' top brands Craftsman and Kenmore with Kmart's successful Martha Stewart and Joe Boxer product lines. It also furthers Sears' strategy of moving away from shopping malls to the more profitable off-mall sites that Kmart stores typically occupy.
But since each firm has struggled on its own, it remains to be seen whether the combined company can manage to keep up with thriving competitors.
Lampert, whose investment firm controls Kmart and is Sears' largest individual shareholder, has orchestrated a financial turnaround at Troy, Mich.-based Kmart since it emerged from bankruptcy in 2003. The discounter turned a $1.1 billion profit last year, although it was largely the result of selling off real estate as sales continued to decline.
He and Lacy, who will be CEO and vice chairman under Lampert at Sears Holdings, say the merger should save $500 million over the next three years. That means announcements of widespread store closings and staff cuts might be imminent.
After boosting profits at Kmart, Lampert faces a similar challenge at Sears, where sales have slipped lower for four consecutive years and the $1.9 billion acquisition of Lands' End three years ago hasn't worked out. He already signaled a change in direction last month with the announcement that dozens of earlier-acquired Kmart stores would be converted to a mid-sized store format called Sears Essentials.
Skepticism
Analysts are skeptical about prospects for a retail turnaround.
"We think Eddie has the Midas touch, and in the short term I expect him to cut costs out of the business and extract value from some of Sears' non-strategic assets," said retail analyst Kim Picciola of Chicago-based Morningstar Inc. "But over the long term, we just don't see this combined retailer effectively competing against the Wal-Marts and Targets of the world."
Retail consultant Howard Davidowitz expects Lampert to take the same approach at Sears to generate cash that he did at Kmart: sell assets, cut costs, reduce inventory and raise prices.
"He recognized Kmart was a cadaver, and he monetized it," Davidowitz said.
"For the short term, it's very exciting. But for the long term, watch out," he said of the strategy, forecasting a "bleak outlook" for Sears unless the move away from malls is successful.
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