A judge approved Kmart Corp.'s bankruptcy exit plan, paving the way for the discount retailer to emerge from Chapter 11 early next month with 600 fewer stores and 80-percent less debt. The retailer hopes to exit bankruptcy on May 5, 2 months sooner than it had originally planned, but it still faces the tough task of convincing Wall Street -- and customers -- that it can compete and survive in a cutthroat market dominated by Wal-Mart Stores Inc. and Target Corp.
After 4 days of hearings and negotiations to resolve some 188 objections, Judge Susan Pierson Sonderby approved the reorganization plan, which gives key investors ESL Investments Inc. and Third Avenue more than half the company's stock and four of nine seats on the board of directors. The Troy, MI, U.S.-based retailer declared bankruptcy in January 2002 after a disappointing holiday shopping season.
Kmart said it will focus on a three-part strategy of offering low prices on certain items to lure customers, building up its private brands such as Joe Boxer and Disney Kids, and filling shelves with a selection of merchandise tailored to fit each store's local demographics. It also plans to fund operations with money from investors ESL and Third Avenue, proceeds from store-closing sales and U.S. $2 billion in exit financing.
Kmart has closed nearly 30 percent of its stores since filing for bankruptcy, leaving it with about 1,500. The retailer has forecast 2007 sales of $30.2 billion, up from an estimated $25.4 billion for 2003. It expects to return to profitability in 2004. The reorganization plan leaves current shareholders with worthless stock, while banks, bondholders and other creditors will be issued new shares. (Reuters)
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