Gaining Efficiencies

By Evan Schuman  |  Posted 2004-11-17 Print this article Print

Company executives quickly pointed to potential operational efficiencies, which will invariably translate into layoffs. But which technologies of the two will be favored is the $55 billion question. "The combination of the two companies is conservatively estimated to generate $500 million of annualized cost and revenue synergies to be fully realized by the end of the third year after closing," said a statement issued by the two retailers. "The combined company will also benefit from improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management." At a news conference Wednesday morning, executives stressed that while independent competition could have made sense, the businesses needed to cut costs so more dollars can be reinvested.
"We need to have a very low-cost structure to compete," said Edward Lampert, the current chairman of Kmart who will be the chairman of Sears Holdings, which will own both businesses.
It was not disclosed who will be managing the IT integration nor the roles that current Kmart CIO Karen Austin and current Sears CIO Gerald F. Kelly Jr. will perform. The timing of the announcement is drawing notice among analysts. To have two consumer retail chains announce a merger in mid-to-late November is not ideal for the retailers, Smith said. "It does put both of their seasons at risk," he said. It is especially dangerous because of the message it sends to employees and the probability that some of the best talent will leave and go to work elsewhere, quite possibly with the direct competition. "If youre working at a company that has just announced that there are several hundred millions dollars worth of synergies to be had, what are you thinking about?" Under the terms of the agreement, which was unanimously approved by both companies boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears Roebuck shareholders will have the right to elect $50 in cash or 0.5 share of Sears Holdings (valued at $50.61 based on Tuesdays closing price of Kmart shares) for each Sears Roebuck share. Executives stressed that the Kmart brand will continue, but executives discussed the potential for many Kmart stores becoming Sears stores and very little potential for the reverse. But that was officially attributed more to store location than brand strength. Editors Note: This story was updated to include more analyst comments. Check out eWEEK.coms for the latest news, views and analysis on technologys impact on retail.

Evan Schuman is the editor of's Retail industry center. He has covered retail technology issues since 1988 for Ziff-Davis, CMP Media, IDG, Penton, Lebhar-Friedman, VNU, BusinessWeek, Business 2.0 and United Press International, among others. He can be reached by e-mail at

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