Another merger

[Charlie Self]

anoldsalt asks:

You know it's going to happen, in the offices if nowhere else, but speculation is probably fruitless. I know a bunch of people who work Sears' main office, and a bunch of people in other companies who depend heavily on Sears in one way or another. I don't know how things will turn out for any of them. I hope well, but don't know.

Presumably that's not going to happen, but that's today's announcement. What tomorrow's announcement will be won't be known for a few hours. And so on down the road.

Charlie Self "Health nuts are going to feel stupid someday, lying in hospitals dying of nothing." Redd Foxx

[Brian Elfert]

Is NTB still in business? All the stores here in Minnesota only lasted a year or two. The stores were vacant for a while and then Discount Tire opened at some or all of the locations.

Brian Elfert

[Ba r r y]

Brilliant.

Barry

[John McCoy]

[e-mail] (Charlie Self) wrote in news: [e-mail]:

No benefit to Sears at all. They are not really merging, Sears is being bought by KMart. KMart wants Sears because the real estate Sears owns is worth a bunch of money (plus they get a few brands they can maybe make a little off, but that's lagniappe).

Note that the fact KMart can buy Sears only 3 years after bankruptcy says there's something really wrong with the bankruptcy laws.

John

[Fly-by-Night CC]

didja see the Frontline program this week? Titled something like, "Is Walmart Good for America?" It's a retail behemoth that dictates manufacturing and if you don't play by their rules, they're so large they can hurt a company's income to the point of financial hardship. Rubbermaid was one of the companies' declines illustrated by Walmart's hardball tactics.

Once Sam died, they really embraced the race to the bottom and abandoned the "Made in the USA" slogan.

[rcook5]

I'm not sure that follows. K-Mart was a classic case of a company rich in illiquid assets (real estate, in this case) that had dug itself into a cash hole with a combination of poor business practices and inability to adapt to changing market conditions. It was technically bankrupt since it couldn't pay its bills, but it had a lot of stuff it could eventually convert to cash.

So in that sense it was an ideal candidate for a Chapter 11 reorganization. (Which really isn't bankruptcy as we usually think of it.) The fact that they ended up with a wad of cash just a couple of years later indicates they were successful in converting some of those illiquid assets into cash.

What this says about the long-term survival of K-Mart or Sears, the wisdom of the merger, or the ethics and tactics of the guy who put the thing together are completely different matters.

--RC

Sleep? Isn't that a totally inadequate substitute for caffine?

[Chuck Hoffman]

It's not like Kmart bought Sears.

Edward Lampert engineered a takeover of Kmart Holdings by converting his debt holdings to equity when Kmart was emerging from Chapter 11. He sold off a bunch of Kmart stores...some Home Depot...and with the cash generated he made the offer for Sears.

According to the paper, the plan is to convert several Kmarts into Sears stores and kick-start their expansion away from malls, at which Sears is not doing well.

[David Hall]

The one down the road from me is still operating. Of course it was just built three or four years ago.

Dave hall

[Prometheus]

I'd have to agree. I wouldn't go into a K-mart if they paid me to shop there, and while I don't hate Sears, I don't have any interest in them either. Everytime I've attempted to get a tool I needed at Sears, it's been something they don't carry, so they quickly became irrelevant to me.

Aut inveniam viam aut faciam

[Prometheus]

Allen does make nice tools. They call em Farm and Fleet around here, but that's where I get all my stuff that isn't mail-order. Same warranty as Craftsman, same quality as Craftsman hand tools, but without the Sears price. I've got a whole toolbox stocked with them, and I've never blown a socket or bent a wrench yet (can't say the same for the tools from other vendors)

Aut inveniam viam aut faciam

[George]

BINGO! Of course, a lot of those assets are probably leveraged a bit now.

[GregP]

Sears did much the same thing in past decades, tho not to the extreme that Walmart has taken it.

[Swingman]

Corporate America and never been all that warm and fuzzy. Either compete ... or get you a government contract.

[Charlie Self]

Swingman notes:

True. They project the image for the customers, not the vendors.

Charlie Self "Health nuts are going to feel stupid someday, lying in hospitals dying of nothing." Redd Foxx

[John McCoy]

[e-mail] wrote in news: [e-mail]:

Yeah - Sears is in much the same position, except it's not in such a bad state cash-flow-wise.

Yes, and it would seem that success is encouraging the mgmt to try much the same process with Sears. Again you have a company "rich in illiquid assets", so the same process of converting them to cash should be just as successful.

I'm not saying anything about the ethics of the guys running KMart. They have played the game according to the rules, and played it well. The issue I see is that the rules allowed them to abrogate a lot of debt and committments (e.g. the suppliers who had to eat inventory when KMart was able to break purchasing contracts); _then_ convert the illiquid assets to cash. Under a traditional bankruptcy the illiquid assets would have been used to satisfy the existing committments. I think the rules should be adjusted, not with the intent of putting a company like KMart out of business, but to at least ensure obligations can't be written off while large value assets are sheltered.

John

[Howard]

The primary reason for K-mart buying Sears is that the combined company would have a large enough loss-carry-forward that it can be profitable for *years* before paying any taxes. K-mart is not currently profitable, so there is no advantage in the past losses. Sears, OTOH, is marginally profitable, and the use of the K-mart losses on the books goes directly to the bottom line.

The fact that more than half of each company is owned by the same group of investors made the merger pretty easy.

-- Howard My opinionated book reviews on sales topics

[rcook5]

The rule in a case like this is that everyone gets to negotiate and at least the majority of each class of creditors has to approve the reorg before the court accepts it. In other words those suppliers had a seat at the table and a chance to be heard, so it's not as unfair as it seems.

If they'd gone through an actual bankruptcy rather than a reorg the creditors would have had a shot at getting part of those real estate assets as they were sold. The problem with that is that it either takes several years to liquidate everything or you end up selling it off as fire sale prices.

In a reorg creditors such as suppliers are typically compensated in part in equity (stock, basically), which means they get something faster and have a shot at more if the reorganized company prospers.

What it comes down to is a judgement call for the creditors and a whole lot of heavy duty negotiating among the various interested parties and their attorneys. Those negotiations are typically pretty brutal.

--RC

Sleep? Isn't that a totally inadequate substitute for caffine?

[David Patnaude]

[e-mail] wrote in news: [e-mail]:

How come everything I have seen indicates that Sears was the one buying Kmart?

[Howard]

It's either way. The same investor group owns more than half of both companies. As mentioned elsewhere, it is for tax purposes more than anything else.

-- Howard My opinionated book reviews on sales topics

[Kevin Daly]

It's about real-estate. Sears has bought 66 existing K-mart and Wal-Mart stores/buildings over the past 12 months as they pursue their "off mall" strategy. For a company flush with cash such as Sears, 11 billion was probably a bargain compared to buying up more individual stores. This merger gives the new company (Sears Holding Corp.) a total of 3500 locations. I can't speak for all of the off-mall stores, but the one locally being converted (a former K-Mart) they will even be carrying groceries. We've heard that stores will be carrying lumber as well (yes, I work part time at Sears). Sounds to me like they're trying to go after both Home-Depot and Wal-Mart. I figure if their lumber and groceries are like that of Home Depot and Wal-Mart I'll continue buying my groceries at grocery stores and lumber at lumber yards.

Kevin Daly