Kmart buys Sears for $11bn to create new retail giant in US

Kmart, the discount retailer controlled by the reclusive billionaire Edward Lampert, bought its rival Sears for $11bn (£6bn) yesterday to create the third-biggest high street player in the US.

Kmart, the discount retailer controlled by the reclusive billionaire Edward Lampert, bought its rival Sears for $11bn (£6bn) yesterday to create the third-biggest high street player in the US.

Shares in the companies rose on expectations that the enlarged business, which will have $55bn in annual revenue, would be able to fight back against the dominance of Wal-Mart, the world's No 1 retailer.

Mr Lampert, a favourite of Wall Street, will chairthe new company, which will be called Sears Holdings. Its headquarters will be in Illinois, with almost 3,500 stores around the country.

The chief executive of Sears, Alan Lacy, will become the vice chairman and chief executive. The deal comes after Sears, a once venerable chain which sells Craftsman tools and Kenmore appliances, had been unable to revive sluggish sales.

Kmart has also been suffering in the shadow of its mightier competitors, such as Wal-Mart, which had $256.3bn in revenues last year. Home Depot, No 2 in the market, has also been growing rapidly, with $64.8bn in revenues.

Kmart was plunged into bankruptcy in 2002 and shed 599 stores and fired about 57,000 workers. It has since been selling underperforming stores and trimming merchandise to build cash reserves and boost profit.

Mr Lacy said: "The combination will greatly strengthen the Sears and Kmart franchises by accelerating the Sears off-mall growth strategy and enhancing the brand portfolio of both companies."

Sears investors will receive $50 in cash or a 0.5 per cent share of the new company in the largest-ever retail merger.

Mr Lampert has focused on buying companies that are undervalued. He is said to have developed his strategy by studying letters sent to shareholders by Warren Buffett, the legendary investor and chief executive of Berkshire Hathaway.

The combined company will have $5.3bn in cash. Sears said it would be able to improve its distribution and sell appliances at Kmart locations.