Leading investor says Kmart is making the right moves

STEPHEN J. CARRERA * Associated Press

Jack Butler, left, a lawyer for Kmart Corp. listened as Julian Day, right, president and chief executive officer of Kmart Corp., spoke at a news conference in Chicago on Tuesday. By Alexandra R. Moses ~ The Associated Press

LANSING, Mich. -- After shuttering hundreds of stores and erasing its debt, Kmart Corp. will emerge from bankruptcy with a strong chance to confound critics who say it can't survive competition from other discount retailers, the company's chief investor said.

Edward S. Lampert, chairman of ESL Investments, the hedge fund that is leading Kmart's rescue, said Wednesday that the company is taking the right steps to ensure long-term health.

On Tuesday, a federal judge approved a reorganization plan for Kmart, marking the final step in the process that will allow it to climb out of 15 months of bankruptcy. The collapse was the biggest retail failure in U.S. history.

Under the plan, the largest single shareholder will be ESL, which is converting $2 billion in claims into stock. ESL, a $5 billion fund specializing in retailers, also is investing an additional $109 million and will own 49 percent of the new Kmart.

Troy, Mich.-based Kmart closed 600 stores nationwide as it worked to return to profitability. It now has more than 1,500 stores and 170,000 employees.

Kmart filed for bankruptcy protection on Jan. 22, 2002, after a poor holiday selling season and as its stock price slumped.

U.S. Bankruptcy Judge Susan Pierson Sonderby signed the confirmation order after negotiations Monday and Tuesday cleared away scores of objections to the plan from creditors, competitors and others. The company is expected to emerge from bankruptcy on or about May 5.

Retail watchers have disagreed on whether and how Kmart will survive in an increasingly competitive discount retail world, but Lampert said Kmart should be able to make money.

"I think if you go in there, you're going to find they have what you're looking for and they're going to have it at pretty good prices," Lampert said.

The company reported a loss of $3.22 billion for fiscal 2002.

Kmart President and CEO Julian Day said the company would continue to be a national retailer appealing to a broad customer base. He said the new Kmart would feature more private brands and would carefully match products on the shelves to local demographics.

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On the Net

Kmart Corp.: www.kmart.com