Sears, Roebuck & Co. and Kmart said today they would merge in an $11 billion deal to form the third-largest US retailer.
The companies said in a joint statement that the new company, Sears Holdings, will have about $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores.
The companies, both of which have been struggling, said in a joint statement the merger, expected to be finalised by next March, was expected to generate significant cost savings but could also trigger sales of "nonstrategic real estate assets.
The deal came as a surprise to many analysts, who were uncertain of the motives behind the merger. "They both bring to the table diverse opportunities, but it's not clear if they are merging to make them more able to stand up to Wal-Mart's greater strength or if this is a real estate deal," said Mr Kurt Barnard, president of the Retail Consulting Group.
Sears shares jumped more than 12 per cent in pre-market trading, while Kmart shares advanced 2.75 per cent . Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share; Sears shareholders will have the right to choose either $50 in cash or 0.5 share of Sears Holdings for each Sears share.
Sears shares have rocketed higher over the past two weeks after it was revealed that real estate investment trust Vornado Realty Trust had acquired a 4.3 per cent stake in the company.
Analysts said the deal highlighted the value of Sears' vast property holdings - with the value of retail real estate rising - and indicated other retailers could be potential buyers of real estate owned by Sears or other department stores.
The merger is expected to generate $500 million in annual cost savings, which will be fully realised after three years.
It is also expected to boost earnings per share "significantly" in the first year, before restructuring costs. Sears Holdings will have its headquarters in Hoffman Estates, Illinois, while Kmart will continue to have a significant presence in Troy, Michigan.