Investor says Kmart will emerge healthy

LANSING, Mich. -- Kmart Corp.'s key investor says the company should exit the biggest retail bankruptcy in U.S. history with the right leadership in place and strategies focusing on long-term health.

A federal judge approved a reorganization plan for the discount retailer Tuesday, marking the final step after 15 months in bankruptcy.

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

Edward S. Lampert, ESL chairman and CEO, said Wednesday that Kmart has a better chance of post-bankruptcy survival because it will leave without debt and its poorer-performing stores.

The Troy, Mich.-based retailer 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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