Marketing Mistakes and Successes, 12th Edition

CHAPTER NINE

Kmart and Sears: A Hedge Fund Manager's Disaster

On November 17, 2004, Kmart Holding Corp. chairman Edward Lampert and Sears chairman and CEO Alan Lacy announced the deal for Kmart to buy the once-dominant Sears department store chain for $11.5 billion. This merger of battered retail giants would propel the combination into the No. 3 position behind behemoth Wal-Mart and Home Depot. This would be the second-largest retail merger ever. It would take the Sears name and be called Sears Holdings Corp.

Some analysts questioned how such a merger of two faltering firms—both long hampered by weak management, outdated stores, and inefficient operations—could make one winner. However, investors thought otherwise and bid up the stocks of both companies. Part of the investor zeal was faith in Edward Lampert as a turnaround expert extraordinaire. That, and the suspected value of the combined companies' real estate.

EDWARD LAMPERT

The 42-year-old Lampert had built a fortune buying struggling companies and turning them around. He had hitherto shunned publicity, though now this was difficult to do in such a highly visible merger. In 2003 any desire for secrecy was thwarted when he was kidnapped from the garage of his office building in Greenwich, Connecticut, with his captors demanding a $1 million ransom. This tested Lampert's persuasive skills, and they were not found wanting, for he eventually convinced the kidnappers to let him go for $40,000.

The son of a lawyer in a comfortable ...