Case Study- Kmart, Sears

and ESL
By

Shreesti Rastogi (13PGP054)

Chandresh Jain (13PGP074)
Sneha Srivastava (13PGP110)

Sushant Singh (13PGP115)

 The case is a classic example of classic example of how acquisition

opportunities can arise in the bankruptcy process
Lampert, manager of hedge fund ESL, transformed Kmarts troubles
into an advantage for him by acquiring the company.

Kmart was the third-largest retailer in the United States after WalMart and Target in U.S.

Case Facts

Later, under the control of ESL, Kmart acquired Sears (another

retailer founded by Richard Sears) in an $11 billion deal, to compete
with Walmart and Target.

Both Kmart and Sears experienced declining revenues and

profitability while losing market share to competitors such as WalMart.
Kmart was not able to control its problems and fell into bankruptcy.
Sears affinity for malls lead to a steady decline in sales as U.S.
consumers increasingly made purchases outside of these suburban
malls.

Trends in the
hedge fund
and private
equity industry

The rise and

fall of Kmart

If, ESL buys a

controlling stake

2002-2003
decision:
Should ESL
seek to gain
the control of
Kmart during
bankruptcy?

Try turning around

the company.
It can change the
management.

If turning around
fails

Prime Real
estate property.

Leased under
market price

Cash inflow,
Reduce cash crunch

Speculation: PPE worth more than

price paid for controlling stake.

Restart operations to
make it profitable.

Could be considered to be an effective

PUT option.

Sell it at the
appropriate time.

Profitable for the company.

 Lampert decided to move ahead with the decision.

Quietly purchased Distressed debt.
Became a member in the Financial Institutions Committee.

Lamperts
Kmart Play

Helped in a faster turnabout of the company.

Controlled 51% of the share in the new company.

Company started trading.

Sold assets to reduce debt.
Stock prices rose, with reduced debt level in balance sheet.

Should Kmart
have acquired
Sears

Could Sears
have
succeeded as a
standalone
retailer?

ConclusionLamperts
strategy and
the benefits

Thank You