FINANCIAL MANAGEMENT

MERGER AND ACQUISITION SEARS-KMART MERGER: THE POTENTIAL SYNERGIES.

The Retail Industry

All businesses that sell goods and services to

consumers fall under the umbrella of retailing. Over the past couple decades, there have been sweeping changes in the general retailing business. What was once strictly a made-to-order market for clothing has changed to a ready-to-wear market In some parts of the world, the retail business is dominated by smaller family-run or regionally-targeted stores, but this market is increasingly being taken over by billion-dollar multinational conglomerates like Wal-Mart and Sears. The larger retailers have managed to set up huge supply/distribution chains, inventory management systems, financing pacts and wide scale marketing

Different types of retailers:

Department Stores - Very large stores offering a

huge assortment of goods and services. Discounters - These also tend to offer a wide array of products and services, but they compete mainly on price. Demographic - These are retailers that aim at one particular segment. High-end retailers focusing on wealthy individuals would be a good example.

Difference between the Discount Store and Departmental Store

Discount stores (e.g., K Mart, Wal-mart, Target)

offer a good selection of items at low prices and are mostly self-service. Department stores, such as Sears or JC Penney, generally have higher prices but tend to have better quality products as well as salespeople that can better help you. A discount store is a type of department store, which sells products at prices lower than those asked by traditional retail outlets.

INTRODUCTION
November 17th 2004 Two oldest US based

retailers signed the Merger Agreement. KMART bought Sears for $11 Billion It would be named Sears Holdings Company Man behind this deal was Edward S. Lampert. Would generate synergies worth $500 million

K-MART
1899Formed as S.S. Kresge by Sebastian Spering Kresge. 1937- First Suburban shopping centre in Kansas City. 1962- First Discount Store in Michigan

1912Number of stores increased to 85 with total revenue of $10 Million.

1959- Harry B. Cunningham as the President

K-MART

1966- Sales reached to $1 Billion

1977- It was renamed as Kmart

2001Decrease in Sales and earnings.

1976- 271 more stores were opened

1993- Total Sales reached to $31,224 Million

2002- Filed its Bankruptcy.

Sears
1886Started as R.W. Sears Watch Company in Minneapolis by Richard Sears.

1895- 532 page Catalogue

1893Adopted the Corporate Name Sears, Roebuck and Co.

1893Recorded a sales of $4,00,000

Sears
1925First retail store in Seattle 1945Sales exceeded $1 Billion 1970Leader in the US retail Industry

1933reached to 400 stores

1953Started its own credit card

Sears
It lost its No. 1 Position to Walmart.

2000- Lacy the new CEO

1999- Not included in Dow 30 Industrials.

2002Opened its full line store in every state in US.

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Sears
2003- New stores concept to fight competition

2003- 65,000 jobs were taken away to reduce debt worth $28.5 billion. He also sold the credit card division to CitiGroup for nearly $32 billion.
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Merger: Sears Holding Company

Merger occurred for economical reasons.

Would benefit both companies in different ways .

Goal is to leverage the combined strengths of

Sears and Kmart to obtain greater long-term value. Increase their merged company's market presence. Higher market shares often result in greater purchasing power over suppliers.

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Marketing Challenges
Operating Independently

Cross Selling of brands

Sears will also benefit from K-Marts

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pharmaceutical, health and beauty products and packaged foods. Shoppers of Metro Detroit welcomed the merger. K-Mart Discount retail chain- Sears products? K-Marts products has an advantage- More Sale as more distribution. More Sears Stores were expected. ( speed up sales)

IT Challenges
The conversion would require significant IT

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changes. Both employed various IT systems. K-Mart IBM SurePOS 700 System. Sears- IBM SurePOS740 System In 2003 Sears signed a 10-year IT outsourcing deal worth $1.6 billion with Computer Sciences Corp. Integration would require considerable time. Back office applications was going to be a serious difficulty.

HR Challenges
There will be also lay-offs which SHC need to

manage well. Employees of Kmart unhappy with the deal.

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Financial Challenges
K-Mart- Declining Sales and Market share.

Sears- Declining Sales since past 10 years.

Lot of work and investment was required which

was difficult. Belief- Low prices of K-Mart and reputation of Sears; a good strategic fit.

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Competitive Advantage
Overall cost leadership : If they offer low prices

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means they will compete directly with Wal-mart which is a leader in low-prices, and SHC cant afford such direct competition with them. Differentiation: Launch unique and valued products, and high quality customers will pay more so price is not an issue. SHC a merger company of Kmart and Sears can not be easily perceived by customers as a high-quality company and the high prices they will offer will push the customers away. Combination of low cost and differentiation: Best Strategy

Recommendation
The quicker they manage to change their

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previous identity into Sears Holding Company, the better. SHC must be placed as a discount store since department stores are no longer liked by customers. They need to have one identity and show improvements and finally get some attention. The best move is to compete against Target and Lowes who are more easily to compete rather than Wal-Mart which is from several years the largest US Corporation.

THANK YOU!
BY : SHIBANI BORDIA ROLL NO. 9 LIBERATION BUSINESS SCHOOL
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