JIACS Vol 13 No 3 2007 p 113-133

JIACS Vol 13 No 3 2007 p 113-133 - 113 KMART-SEARS MERGER...

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113 Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007 KMART-SEARS MERGER OF 2005 Noushi Rahman, Pace University Alan B. Eisner, Pace University Unless this new retail giant proves that it’s capable of creating stronger customer connections, there will be no real value to this merger ” (William J. McEwen, Gallup Management Journal ) As a retailer, we really have not grown at all for the last 35 years ” (Alan Lacy, Vice Chairman of SHC, Ex-Chairman of Sears) The idea is to form “one great culture ” (Edward Lampert, Chairman of SHC, Ex- Chairman or Kmart) CASE DESCRIPTION The primary subject matter of this case is corporate strategy. The subject matter is fleshed out in the context of a merger. This case is intended for an undergraduate or graduate corporate strategy section of a business strategy course. The case is designed to be taught in one class hour and is expected to require one hour of outside preparation by students. CASE SYNOPSIS In November 2004, retail giants Kmart and Sears announced plans to “merge” their operations. The “merger” was finalized in March 2005 and the combined entity was named Sears Holding Company. At the completion of the “merger,” Sears Holding Company had revenues of more than $55 billion (in addition to $2.8 billion in debt), making it the third largest domestic retail company following Wal-Mart and Home Depot. The new organization would face three important issues: competition, synergy, and culture. Appropriate strategies, structures, and culture-blending initiatives must be developed to integrate these historic, disparate organizations to successfully perform as one unified business firm. THE MERGER In late 2004, two giant U.S. retail corporations—Sears, Roebuck and Co. and Kmart Holding Corporation—announced that they would merge operations to form the Sears Holding Company
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114 Journal of the International Academy for Case Studies, Volume 13, Number 3, 2007 (SHC). In terms of how the new entity’s name was selected, the Sears name was apparently held in higher esteem by consumers than the Kmart name. Associates, Opinion Research Corp. (of 1,050 U.S. adults), 75% of Americans preferred the “Sears” name over “Kmart.” Under the terms of the merger, SHC became the third largest retailer in the U.S. with approximately $55 billion in annual revenues and 2,350 full-line and off-mall stores and 1,100 specialty retail stores in the U.S. Kmart shareholders received one share of SHC common stock for each Kmart share. Sears shareholders had the right to elect $50 in cash or 0.5 of a share of SHC for each share of Sears’s common stock. At the time of the merger, it was estimated that the former shareholders of Kmart would have an approximate 63% interest in SHC and former shareholders of Sears would hold a 37% interest in SHC. On the morning of March 24, 2005, the merger approval date, Sears shares fell $6.06 (about 11%) to $50.74 (NYSE) and Kmart shares rose $1.19
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JIACS Vol 13 No 3 2007 p 113-133 - 113 KMART-SEARS MERGER...

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