NARSE Survey Results
March 18, 2005
the ten days that the Kmart/Sears merger survey was posted on
NARSE's web site, there were 1,060 responses. NARSE appreciates
all of the input from retirees, family members of retirees and
Sears employees who took the time to complete the survey. Almost
40% of the respondents identified themselves as "Sears
The survey disclosed that
88.4% of the respondents are opposed to the Kmart Sears merger.
This confirms NARSE's opposition to this $11 billion dollar
takeover. NARSE has opposed this "merger" for a number of
reasons: (1) we believe that this
merger/ takeover will not result in a
competitive, powerful, merchandising
organization accepted by the shopping
public; (2) this takeover is
not a solid, attractive stock investment for investors,
associates and retirees; and (3) it appears that Sears Holdings
Corp. will not honor its commitments to both associates and
Sears retirees. See our
complete opposition statement elsewhere on this web site.
In addition, the vast majority
(86.9%) of the respondents are not satisfied
with Sears' directors, executive
leadership, performance, competitiveness and growth under the
current Sears administration.
(Why NARSE Opposes the Kmart Takeover)
March 12, 2005
After the November 17, 2004 announcement about Kmart’s
bid for Sears, the National Association of Retired Sears Employees (NARSE)
sent a letter of introduction to Edward Lampert and Alywin Lewis. They
were told that for an acquisition to succeed and be supported by NARSE, it
must contain the following conditions: “(1) your efforts must result in
a competitive, powerful merchandising organization accepted by the
shopping public; (2) this merger must be free from any stock price
manipulation and be a solid, attractive stock investment for everyone,
including investors, associates, and retirees who are also shareholders;
and (3) Sears Holdings Corp. must honor its commitments to both associates
and Sears retirees.”
None of these conditions are “pie in the sky” demands.
Rather, they are based upon what is needed to turn around a failing
company. And, to quote an earlier respected Sears Chairman, General Robert
E. Wood, “a corporation is judged in a number of ways. A business must
account for its stewardship not only on the balance sheet, but also in
matters of social responsibility.”
We concluded our letter by offering our assistance in
any way to make this merger or any merger a success, but only “when it
proves to be in the best interests of all shareholders, associates and
Even though the takeover has yet to be completed, none
of the press releases from Kmart or Sears, nor any of the SEC filings or
disclosure documents (proxy statements, annual reports, prospectuses, etc)
by these two companies, nor statements made by Chairman Lacy at Sears Town
Hall meetings, nor even the recommendation by a proxy advisory firm, has
convinced us that this “merger” will be in the best interests of all
shareholders, associates and Sears retirees.
Therefore, after careful consideration, NARSE must
oppose this $11 billion dollar takeover between Kmart and Sears. In
addition, the preliminary results of the survey we are now conducting on
the NARSE web site discloses that only 3 percent of the respondents
approve of the “merger". And, to date, 40
percent of the respondents identified themselves as Sears employees.
Our reasons for opposing the Kmart-Sears takeover are as
Condition 1 requires a competitive, powerful
merchandising organization accepted by the shopping public. The
following was recently reported in Crain’s Chicago Business:
“Suspicions about the Sears-Kmart deal are looking
increasingly accurate: more about turning assets into cash than building a
“For evidence, look at the proxy (recently) filed
with the U.S. Securities and Exchange Commission…detailing Kmart Holding
Corp.’s agreement to buy Sears, Roebuck and Co. for $11 billion. It
reveals a company controlled by Wall Street financiers experienced at
making money through investments, not operations. And it foreshadows a
piecemeal sell off of some of Sears biggest assets and payoffs for Sears
top executives, most of whom have been with Sears less than five years.”
Since the announcement of the “merger,” our phones have
been ringing off the hook. There has been an utter disbelief that Kmart, a
recently bankrupt, troubled retailer could buy Sears, regarded for decades
as the internationally recognized model for innovative marketing to
millions. For years, foreign companies sent their key executives to Sears
to train and learn their successful merchandising and marketing methods.
More importantly, will customers/shoppers be happy with
this takeover? How long will it take for the new Kmart & Sears
organizations to define themselves, develop effective buying and selling
strategies, and decide how, where and what each store is selling? Based on
past performance, there is little reason to expect that Kmart’s reputation
for its stores, merchandise, value and service will enhance Sears
Sears Chairman recently said it may take up to two years
to fully integrate the two stores. With so many other places to shop, will
the shopping public have the patience to wait while the restructuring
And, Sears Holdings Corporation (SHC) has yet to
announce its “new team.” Does this new team consist of more operators? Are
they more financiers or are they real merchants with a vision of where the
shopping public will be in the future? True visionary merchants don’t try
to merely duplicate what the Wal-Marts and Targets of the industry are
doing. We hope that this is not the Sears “Grand” plan for the future!
Since we don’t know where SHC intends to go, we cannot place the future of
the Company in the hands of a tight-mouthed organization that likes to
keep the public guessing before the takeover is completed.
So, on the First Condition, it is a definite
VOTE AGAINST THE MERGER.
Element 2 requires a solid, attractive stock
investment for everyone. Since the announcement of the proposed
“merger” last November, NARSE has been tracking the stock prices of Kmart
and Sears. Consistently, Sears has traded over $50 per share exchange
price. In recent days, Kmart shares have risen, but whether this is a
market reaction or manipulation by certain Kmart shareholders remains to
Based upon our analysis of the stock prices of Kmart and
Sears since the announcement, it appears likely that the conversion to
Sears Holdings will be detrimental for Sears shareholders. However, this
is an individual decision that each shareholder must make for themselves
And, since SHC will not be paying dividends for the
foreseeable future, the potential for Sears shareholders and retirees is,
to say the least, not encouraging. Just do the math!
And speaking of math, another $11 billion dollar merger
was recently announced between two much smaller retail organizations –
Federated Department Stores, Inc. and May Department Stores Co. This
merger will consist of a combined 950 department stores. Federated has
annual sales of $15.6 billion; and May’s has annual sales of $14.4
If $11 billion dollars is the right price for two
smaller retailing organizations, how can it possibly be the right price
for Sears?! And when you do the math, something smells fishy in Troy,
Michigan and Hoffman Estates, Illinois. Where’s corporate governance when
you need it?
Is anyone happy about this takeover? Can the
institutional investors really be happy? How can individual investors be
happy with this deal? How secure will currently employed associates feel
about the dismantling of their company? In and event, Lampert, Lacy and
Lewis appear to be very financially happy with this arrangement.
So, on the Second Condition, it is again a
definite VOTE AGAINST THE MERGER.
And finally, we come to Condition 3 that requires
Sears Holdings Corp. to honor its commitments to both associates and Sears
Sears has already publicly acknowledged that there will
be significant layoffs, but as Sears CEO Lacy has said, we cannot “return
to the status quo.” We certainly hope not! The “status quo” under Chairman
Lacy and his Board for the past five years has been a series of costly,
failed ventures and concepts. The American shopping public votes everyday
and is spending their money elsewhere.
And what about the currently employed associates?
Chairman Lacy has already acknowledged that worker anxiety over benefits
and jobs is not completely unfounded. He has said that jobs will be cut
and the compensation and benefits might be reduced to levels more in
line with what Kmart offers. Such statements have never built
strong morale in any company. And stress levels have climbed knowing the
power that Eddy Lampert will yield and the uncertainties about whether he
views Sears to be more of a real estate broker rather than a premier
Associates are being treated as a commodity, not as part
of a family that should be pulling together to improve Sears problem
performance. Such a mentality does not create a sense of loyalty between
employer and employee. But maybe they don’t care. Would you?
And then there are the Sears retirees -- folks that
helped make the company a premier American retailer. It appears that they
will be tossed along the wayside, with many Sears “duplicative”
associates. The medical benefits for Sears retirees will probably be
secure for 2005 but all bets are off for future years.
Retirees are also customers and shareholders, who have
family and friends who are customers and shareholders. So, the takeover
team should realize that the potential impact of Sears retiree benefit
decisions will be far greater than the actual number of Sears retirees.
Of course, it is the company’s prerogative to do
whatever they want to do regarding retiree benefits. But, taking away
medical benefits is a real slap in the face to all retirees who are not
only customers but also shareholders. We sincerely hope that these
retirees will remember this “slap” when they cast their vote on the
“merger” issue. And if the takeover is approved, through no fault of
retirees, these retirees should remember this slap when they decide where
So, on the Third Condition, it is once again an
affirmative VOTE AGAINST THE MERGER.
What has happened to a once great American retailer? How
has this retailer lost touch with the American shopping public during the
administrations of recent Chairmen and their Boards of Directors? What has
happened to corporate governance?
Unless SHC intends to bring in top-notch merchants after
the merger is approved, the executives who are now tapped to run this new
entity --- Chairman Eddy Lampert, Co-Chair Alan Lacy, President Alywin
Lewis, Chief Financial Officer William Crowley and all of the directors –
are not merchants who know anything about turning around a stagnant
retailer and making it a premier American store again. (See pages 78 & 79
of the proxy booklet.) What a sad day for Sears!
Finally, Sears has recommended to its shareholders in a
booklet sent to them about this proposed merger that they “should
carefully consider the following risk factors in deciding whether to vote
for adoption of the merger agreement.”
And what are these risk factors that Sears Board of
Directors felt should be rejected since they believed that “overall,
the potential benefits of the mergers to Sears and Sears stockholders
outweighed any of the risks”?
Let us count the 13 risks (underlined) that Sears
has set forth:
1. Sears stockholders may not receive the form of
merger consideration that they elect for all of their shares and may
receive in part a form of consideration that has a lower value.
Because the ”merger” agreement requires 45% of Sears shares be converted
into cash and 55% of Sears shares be converted into Holdings common stock,
it is “likely” that a substantial number of Sears stockholders will not
receive a portion of the “merger” consideration that they elected and the
consideration they do receive will have a lower value than what they
elected to receive.
2. Because the exchange ratios are fixed, the market
value of Holdings common stock issued to you may be less than the value of
your shares of Kmart common stock or Sears common stock. NARSE’s
tracking of the share prices of Kmart & Sears has shown this to be true.
Contrary to what the proxy advisory firm, Institutional Shareholder’s
Services has said, the premium offered by Kmart IS NOT REASONABLE!
3. If you deliver your Sears shares to the exchange
agent to make an election, you will not be able to sell those shares
unless you revoke your election prior to the election deadline or the
merger agreement is terminated.
4. We may fail to realize the anticipated synergies,
cost savings and other benefits expected from the mergers, which could
adversely affect the value of Holdings stock. Why could this be?
There are many reasons, but Sears has set forth several: (1) there is a
risk that national brands may not sell to the combined companies; (2)
expanding the offering and distribution of proprietary brands may impact
the value of those brands and lead to cannibalization of sales from either
Kmart or Sears; and (3) Holdings may be unable to realize the value it
expects from the combined real estate portfolio, including being able to
differentiate product offerings at its various locations.
5. The failure to integrate successfully Kmart’s and
Sears’ businesses and operations in the expected timeframe may adversely
affect Holdings’ future results. Integration of two separate
companies has never been an easy task. And, as Sears has said, such
bringing together “will be costly, complex and time consuming, and the
management of Kmart and Sears will have to devote substantial resources
and efforts to it.”
6. Directors of Kmart and Sears may have potential
conflicts of interest in recommending that you vote in favor of the
adoption of this merger agreement. This sounds very serious! As the
proxy statement says, a number of directors of Kmart and Sears who
recommend that you vote for the adoption of the “merger” have employment
or severance agreements, equity compensation and other benefit
arrangements that provide them with interests in the “mergers” different
from the shareholders.
7. Affiliates of the Chairman of Holdings (Eddy
Lampert), whose interests may be different than your interests, will have
substantial influence over Holdings. After the mergers, Lampert’s
ESL Companies would be expected to own between approximately 40% and 44%
of the outstanding shares of Holdings common stock. Therefore, Lampert, an
investor and not a person with retail experience, would have significant
influence over many if not all actions to be taken by Holdings
stockholders after such “mergers,” including the election of directors to
the Holdings board and transactions involving a change of control.
8. Following the mergers, Holdings will have
significantly less cash on hand than Kmart and Sears prior to the mergers,
which could adversely affect its ability to grow and perform.
9. Certain rating agencies have assigned Holdings
below-investment grade debt ratings, which could adversely affect its
ability to access financing on terms acceptable to it and, consequently,
its ability to grow and perform.
10. Holdings does not expect to pay dividends for the
foreseeable future, and you must rely on increases in the trading prices
of Holdings stock for returns on your investment. For retirees,
many rely upon dividends from their portfolio to supplement their pension
and social security.
11. The loss of key personnel may adversely affect
Holdings. Since a lack of key merchandising personnel at Sears
resulted in the situation they are in today, i.e., the “status quo,” this
may really be a benefit, not a risk!
12. Former Sears stockholders who become stockholders
of Holdings will be governed by the restated certificate of incorporation
and restated by-laws of Holdings. What this means is that there will be
material differences between current rights of Sears stockholders and the
rights they can expect to have as Holdings stockholders.
13. We are parties to pending lawsuits in connection
with the mergers.
So, based upon all of the above, we recommend that you
vote AGAINST the takeover, known in nicer circles as a “merger,” of Kmart
& Sears. It is our opinion that it is bad for the associates. It is bad
for the shareholders. It is bad for the retirees. It is bad for the
American shopping public. It is only great for Lampert, Lacy and Lewis.
YOUR VOTE IS VERY IMPORTANT.
YOUR NEGATIVE VOTE AGAINST THIS TAKEOVER IS CRITICAL FOR THE SURVIVAL OF
SEARS, ROEBUCK AND CO.!