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Kmart bankruptcy plan OKd
Retailer gets court approval, scheduled to emerge from protection around May 5.
April 23, 2003: 5:07 AM EDT
By Winnie Dunbar, CNNfn producer

CHICAGO (CNN) - Kmart Corp. secured court approval for its Chapter 11 exit plan, allowing it to emerge on or about May 5 from what has been the largest retail bankruptcy in U.S. history.

U.S. Bankruptcy Judge Susan Pierson Saunderby approved the plan late Tuesday in Chicago after ruling on more than 188 objections, resulting in more than a week's worth of hearings. The approval came two months earlier than expected.

The objections came mainly from landlords who own some of the Kmart stores; one came from rival Wal-Mart Stores (WMT: Research, Estimates), which is fighting Kmart over the patent of a checkout carousel.

ESL Investments, a $5-billion hedge fund focused on retail investing, is converting $2 billion in claims into stock and contributing an additional $109 million. The fund will now be Kmart's main shareholder, owning 49 percent of the Troy, Mich.-based company.

When the emergence becomes official, a $1 million bonus will go to Chief Executive Julian Day, said spokeswoman Lori McTavish. The award was figured into the bankruptcy plan as an incentive to Day; it was first made public in February so as not to jeopardize creditor and shareholder decisions about the company.

Kmart's next step is to begin its "transition period." The company forecasts $25.5 billion in sales for fiscal 2003, a 17.5-percent drop from sales in 2002.

The company will eradicate its existing stock, repay the $2 billion in prearranged financing, and attempt to secure new financing needed to return Kmart to profitability -- which, in the restructuring plan, is not expected until 2004.

"When we emerge, the current common stock of Kmart will be canceled and the new stock will be issued," said Jack Butler, the lead bankruptcy attorney for Kmart. "The bond holders that are in one of the classes will get their stock almost immediately. Other creditors will get their stock over a period of time as their claims are allowed and their stock is distributed."

Butler said he will announce soon which national exchange Kmart stock will trade on as it emerges from Chapter 11.

"We intend to operate this company in a very steady, well-thought-out way," Day said. The company's strategies, he said, "will, as we apply them through time, cause this company to serve its stakeholders well by serving our customers well. "That's our game plan."

After closing hundreds of stores since declaring bankruptcy in January 2002, Kmart will now operate a streamlined 1,513 stores and focus on its well-known brands such as Disney and Joe Boxer. Kmart will eventually open an additional 70 stores.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.