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Kmart Holding Corp. and Sears, Roebuck & Co. announced this morning that they will merge in a cash and stock deal worth $11 billion, creating the nation’s third largest retailer with more than 3,400 stores and annual sales of $55 billion in annual revenue.

According to published reports, the two brand names will continue to operate separately, owned by a holding company named Sears Holdings. The companies say that a merger will create synergies that will result in annual savings of $500 million for the two companies.

Kmart chairman Edward S. Lampert reportedly will become chairman of Sears Holdings, and will be joined in an office of the chairman by Alan J. Lacy, current chairman and chief executive officer of Sears, and Aylwin B. Lewis, current president and chief executive officer of Kmart. Lacy will be vice chairman and CEO of Sears Holdings and Lewis will be president of Sears Holdings and CEO of Sears Retail. Glenn R. Richter, currently chief financial officer of Sears, Roebuck, will be executive vice president and chief financial officer of Sears Holdings.

The deal is expected in close in March 2005, pending approvals by federal agencies and shareholders.
KC's View:
Wonder if Aylwin Lewis is going to have time now to take that much-vaunted three-month road trip to visit a whole bunch of Kmart stores, employees, customers and vendors? Because his life just got a lot more complicated…

Seriously though, these two companies are going to have to go a ways to convince us that this is a deal that will make difference in terms of front-line retail operations. (We’ll concede that the deal is probably good for stockholders in the short term. These deals always are…because the guys making the deal generally own a lot of stock.)

Seems to us that the potential is just to create a bigger bureaucracy in which it will be even easier to be out of touch with the 2005 consumer. And the real measuring stick, let’s face it, will be whether this does anything to create an entity that is more competitive with Wal-Mart, that will offer a compelling shopping experience that will stand in contrast to the one Wal-Mart offers.

From where we sit – and we concede that this news is just minutes old, so all the evidence isn’t in – it looks like all this does is give Wal-Mart a bigger target to aim at.

But we’ll see.