- CHICAGO (Reuters) - Kmart
Corp. on Tuesday filed for bankruptcy protection, the largest retailer
ever to do so, after a dismal holiday sales season and stiff competition
from rivals Wal-Mart Stores Inc. and Target Corp. left the company strapped
for cash.
-
- The second-largest discount retailer, which began as
a ''five-and-dime'' store in Michigan in 1897, said it had secured $2 billion
in debtor-in-possession financing, which allows the company to operate
while reorganizing. Kmart said its 2,114 stores remain open for now, but
it will review their future by the end of April. Wall Street analysts have
said Kmart needs to close around 300 to 400 underperforming stores.
-
- The 105-year-old retailer, which filed for voluntary
bankruptcy in Chicago, said it hopes to emerge from reorganization in 2003.
-
- Kmart, a prominent casualty of the slump in the U.S.
economy and vicious competition in the retail sector, suffered a fall almost
as dramatic as that of energy trading giant Enron Corp. . After a Wall
Street analyst said on Jan. 2 that Kmart could be forced into bankruptcy,
the company's stock fell almost 70 percent in just over two weeks.
-
- Shares of Kmart fell to 80 cents in late morning trade
on the New York Stock Exchange, down another 54 percent from Friday's close.
U.S. markets were closed on Monday for the Martin Luther King holiday.
-
- Kmart, the No. 2 discount chain behind Wal-Mart, had
been in talks with its lenders to seek additional financing and is expected
to report a loss for fiscal 2001.
-
- The company said its decision to seek bankruptcy protection
was based on several factors, including a rapid decline in its liquidity
resulting from lower-than-expected sales and earnings in the fourth quarter,
the evaporation of the surety bond market and an erosion of supplier confidence.
-
- Surety bonds are insurance policies that pay out when
a company fails to meet a financial obligation.
-
- WAL-MART POISED TO GAIN SHARE
-
- Wall Street analysts said No. 1 retailer Wal-Mart was
poised to strengthen its grip by grabbing Kmart market share and could
end up with the bulk of Kmart's nearly $40 billion in annual sales.
-
- Kmart's fate was sealed on Monday when Fleming Cos. Inc.,
a major U.S. distributor of grocery products and Kmart's sole grocery supplier,
suspended shipments after Kmart failed to make a regular weekly payment.
-
- Fleming said after the bankruptcy filing that it was
evaluating Kmart's impact on its earnings for 2001, 2002 and 2003. Kmart's
business accounts for about $4.5 billion, or one-fourth of Fleming's annualized
revenues of about $19.5 billion.
-
- Scotts Co., a maker of lawn and garden products, also
said it stopped shipments to all Kmart stores.
-
- During the restructuring process, vendors, suppliers
and other business partners will be paid under normal terms for goods and
services provided, Kmart said.
-
- One analyst said the bankruptcy filing would allow Kmart
to stock its shelves more easily.
-
- ``Undoubtedly they will continue functioning more normally
from now on, and they will get lots of merchandise,'' said Kurt Barnard,
president of Barnard's Retail Consulting Group. ''Vendors will no longer
be afraid to ship because they are worried they will not get paid.''
-
- But Emme Kozloff, a retail analyst at Sanford Bernstein,
speculated in a research note that Kmart may not be able to survive.
-
- ``Long-term, we believe the possibility that Kmart will
disappear has increased,'' Kozloff said. ``We do not believe Kmart currently
houses an appropriate stable of brands that will allow it to regain market
share it will likely lose over the next several months as its seeks to
reestablish its financial stability.''
-
- Trading in Kmart debt obligations suggested that some
investors were betting on the retailer's ability to emerge from bankruptcy.
-
- ``We're seeing some good buy interest on part of vulture
funds at these levels,'' said Harold Rivkin, president of H. Rivkin &
Co., a brokerage firm specializing in distressed and bankruptcy debt in
Princeton, New Jersey. ``This is a classic large retail bankruptcy. People
see value once it gets restructured.''
-
- Fitch, Moody's Investor Services and Standard & Poor's
all give Kmart's debt a low ``junk'' rating.
-
- Kmart's exclusive brands include the popular Martha Stewart-branded
linens and housewares. Martha Stewart Living Omnimedia Inc. and Kmart have
been in business together since 1997.
-
- Martha Stewart has the right under the contract to pull
her goods now that bankruptcy proceedings have begun. Loss of the Martha
Stewart products would be a severe blow to Kmart, analysts have said. Calls
to her company were not immediately returned.
-
- JOB CUTS, STORE CLOSINGS?
-
- ``We are determined to complete our reorganization as
quickly and smoothly as possible, while taking full advantage of this chance
to make a fresh start and reposition Kmart for the future,'' Charles Conaway,
Kmart's chief executive, said in a statement.
-
- Kmart has secured $2 billion in financing from Credit
Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital
Corp. and JPMorgan Chase Bank. The financing, which is subject to bankruptcy
court approval, will be used to supplement Kmart's cash flow during the
reorganization process, the company said.
-
- In its filing documents, Kmart and its U.S. subsidiaries
listed total assets of $17 billion at book value and total liabilities
of $11.3 billion as of the fiscal quarter ended Oct. 31, 2001. Kmart's
foreign subsidiaries are not covered by the filing.
-
- Kmart said it was also seeking bankruptcy court approval
to immediately terminate the leases of about 350 stores that it had previously
closed or that are currently being leased by other tenants. The company
expects an immediate annual savings of about $250 million from that move,
it said.
-
- The retailer is also looking to reduce annual expenses
by an additional $350 million through job cuts and consolidation, among
other things. Kmart employs about 250,000 people.
-
- Kmart said it named Ronald Hutchison as chief restructuring
officer, a new position. He and James Adamson, who was named chairman last
week to replace Conaway, will oversee the reorganization. Conaway remains
chief executive.
-
- Hutchison, 51, was most recently chief financial officer
of Advantica Restaurant Group Inc. . Adamson, who is known as a turnaround
specialist, retired as chief executive of Advantica in December.
|
