NEW YORK (CNN/Money) -
Sears, Roebuck and Co. is buying more than 60 stores from competitors Kmart Corp. and Wal-Mart Stores Inc., as it makes its largest push away from the nation's malls in a number of decades.
Sears will buy up to 54 stores from Kmart for a maximum purchase price of $621 million in cash, the companies announced Wednesday. It also announced plans to sublease seven stores from Wal-Mart, the nation's largest retailer.
"These transactions will jump start our strategy to grow the Sears brand off-mall, increase our points of distribution, and acquire well-located real estate at a fair value in key markets for Sears," said a statement from Sears chairman and CEO Alan J. Lacy.
Shares of Sears (S: Research, Estimates) were slightly lower in late-morning trading in New York following the announcement, while Kmart (KMRT: Research, Estimates) shares were up about 7 percent and Wal-Mart (WMT: Research, Estimates) shares gained just less than 1 percent.
The exact number of the Kmart stores and their locations will be determined within the next 60 days, according to Kmart's statement. But Sears said almost 60 percent of its new locations will be in the nation's largest markets.
Jerry Hirschberg, analyst with credit rating agency Standard & Poor's, said that these are likely to be prime locations where Kmart hasn't been able to justify a return on investment.
"I think that Sears has been putting together a strategy for growth for several years. It started with the acquisition of Lands End in 2002 and it's developed into this," said Hirschberg. "We think this strategy makes better sense than not doing anything. It should be more rewarding to Sears than standing pat with the 870 stores."
Sears, once the nation's largest retailer, lost its No. 2 ranking among general retailers to Target Corp. (TGT: Research, Estimates) in 2002, as its revenue stayed relatively flat while Target posted consistant growth. It has trailed big-box hardware retailer Home Depot (HD: Research, Estimates) even longer than that.
Neither Target, Wal-Mart nor Home Depot have many locations in the typical enclosed mall, while Sears does.
S&P reaffirmed Sears' credit ratings after Wednesday's announcement. The company had about $4 billion on its balance sheet at the end of the first quarter.
Cash rich Kmart
Kmart said it will continue to operate the stores that are to be sold until March or April 2005. Sears has agreed to consider offering a job to any Kmart employee who desires to be employed by Sears (S: Research, Estimates) at the converted stores.
Kmart (KMRT: Research, Estimates) had already announced the sale of up to 24 stores to Home Depot earlier this month for about $365 million in cash.
The stores being considered for sale represent about 5 percent of Kmart's current store base.
Richard Hastings, retail analyst with credit advisory firm Bernard Sands, estimated that Kmart could build up a cash pile of more than $3 billion soon, and possibly $3.75 billion in the next 12 months. The retailer reported more than $2 billion in cash and cash equivalents as of April.
That money can be used to acquire fast-growing retailers and to hire the best employees, Hastings said.
The store sales leave Kmart with about 1,420 stores and $20 billion in annual revenue, which still makes it the No. 3 U.S. discount retailer behind Wal-Mart and Target.
But the sales have raised some questions about Kmart Chairman Edward Lampert's plans for the company. At Kmart's first post-bankruptcy annual meeting in May, several shareholders asked whether Lampert planned to turn Kmart into a real estate company rather than a retailer, selling off some stores and leasing out others.
Lampert, by far Kmart's biggest shareholder, said the retailer is not actively looking to sell its stores but would consider an offer if it involved more money than the company thought it could make running the stores.
In a statement Wednesday, Kmart CEO Julian Day said the retailer was not currently in talks for any big store sales, but would "evaluate" offers.
In January 2002, Kmart became the largest U.S. retailer to file for bankruptcy after a poor holiday shopping season compounded financial woes. It emerged from Chapter 11 in May 2003 with new investors, far less debt and a management team led by financier Lampert.
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Lampert is also a big Sears shareholder. His investment companies owned 13.5 percent of Sears's stock, according to the retailer's proxy statement filed with the Securities and Exchange Commission in March.
-- Reuters contributed to this report
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