GULP -
Sears Retirees are being Socked Again
June 11, 2005
Retirees to have the GULP (Group Universal Life Plan)
recently got a rude awakening when they received a letter from the
administrator of the plan informing them that they will no longer be on a
flat rate, but that their premiums will be age-related
just like active associates, dependents and spouses.
GULP is a separate life insurance program, not related
to the life insurance benefit that was subject to a lawsuit/settlement a
number of years ago. GULP is paid for by the insured. It was program
offered to associates and new retirees.
According to the GULP program manager, since the plan
continues to operate in a deficit situation, the previous flat rate
premiums are being eliminated and all premiums are now being re-calculated
using rates based upon age and smoker status. Depending upon your age and
smoking habits, some rates will double! These new rates will become
effective July 1, 2005.
This increase in premiums, to a group that can no longer
shop around for term life insurance, just makes it clearer to all retirees
how much we really all lost in the original reduction of our life
insurance by “King Arthur” Martinez.
Unfortunately, premiums can be increased. But such
increases are the latest affront to the entire defenseless retiree
population at a time when retirees are vulnerable and the cost of
replacing the coverage is prohibitive.
Sears is socking it to retirees again, as expected.
What’s next? It has been reported that Sears has joined a national
coalition called National Health Access, which is designed to help
part-time workers, temporary and seasonal employees, contract and
franchise workers, pre-Medicare retirees and dependents.
This coalition is expected to be launched this fall and
includes, in addition to Sears, Ford, General Electric, McDonald's, IBM,
General Mills, SYSCO, and Texas Instruments. If this coalition health-care
benefit is offered to retirees, it will be at a group rate, but we suspect
that retirees will be shouldering the entire cost of such medical
benefits.
So what do you do? First, carefully review your current
coverage and decide whether you can continue to afford the premium
increase for GULP. We all have household expenses, medical expenses, drug
costs, etc. If you find it difficult to afford the premium increase, you
may either have to cut back on the amount of life insurance coverage, or,
as a last resort, cancel your policy if it is cost prohibitive for you.
If you decide to drop your GULP insurance coverage and
withdraw the money in your cash accumulation fund, there may be an impact
on your taxes. You should consult your tax advisor before making this
decision.
Second, regardless of what you do regarding the GULP,
call or write Sears to express your extreme displeasure with the rate
increases. Yes, GULP is underwritten by Metropolitan Life Insurance
Company and administered by Marsh@WorkSolutions, but this is still a Sears
retiree benefit. In other words, go to the “father,” not to the “son.”
Sears Holdings Corp. (SHC) may be following the latest corporate trend in
attempting to relieve itself of its responsibility. In our opinion, this
is just another breach of a fiduciary relationship!
To express your opinions about this issue, you can write
to Edward Lampert, chairman of SHC at ESL Investments, 200 Greenwich Ave.,
Greenwich CT 06830; or, Alan Lacy or Aylwin Lewis at Sears Holdings Corp.,
3333 Beverly Road, Hoffman Estates, IL 60179; or call the general
switchboard number in Hoffman Estates, 847/286-2500 and ask to be
connected to the appropriate executive.
And third, as a last resort, and to express your
displeasure with the company’s lack of respect for its retirees (“actions
speak louder than words”), there are other stores on the block that you
can shop at—for clothing, for appliances, for electronics, for tools, for
household items, etc.
In conclusion, we recently received an e-mail from a
former Sears executive who told us:
“During my career, I told Sears’ associates that they
would never be a ‘drudge’ on society because of now Sears long forgotten
retiree benefit package. The merger of Sears and K-Mart is akin to two
drunken losers. You put them together, and you have one BIG loser who will
be selling more of the assets to maintain a cash flow…”
As has been reported in the press, Sears fate continues
to remain the topic of much speculation. Some analysts believe Lampert
will liquidate the company and move on, while others see him turning the
company around.
Analyst Howard Davidowitz, chairman of Davidowitz &
Associates, a retail-consulting and investment-banking firm based in New
York, believes Kmart will last no more than three years, and the Sears
brand will be dead within six years. Davidowitz rational is:
“Lampert is a short-term player…His strategy is
short-term asset maximization [rather than] long-term building of a
business.”
However, analyst Kurt Barnard, president of Barnard’s
Retail Consulting Group, a Nutley, New Jersey based firm that forecasts
industry trends and consumer spending patterns, disagrees, saying he
believes Lampert wants to run Sears for the long-term, in the tradition of
Wal-Mart founder Sam Walton, by listening to customers, gaining knowledge
from suppliers and becoming more nimble and technologically savvy. But,
Barnard cautioned “Lampert also clearly leaves open any and all
options.”
Let’s hope that the options ultimately selected by
Lampert will be beneficial for shareholders, associates and retirees
alike!
Sears Holdings Corporation files Joint
Proxy Statement-Prospectus
with SEC Regarding Proposed Merger
January 21,
2005
On January 7, 2005 Sears Holdings
Corporation filed a joint proxy statement-prospectus on behalf of Kmart
Corporation and Sears, Roebuck and Co. regarding the proposed merger of
the two companies and the formation of Sears Holdings Corporation. The
date for the respective special meetings of stockholders of Kmart and
Sears stockholders was left blank in this SEC filing.
However, each company will have
special stockholders' meetings to vote on this proposed merger. The
purpose of these special meetings are described in the filing as follows:
Kmart. At
the Kmart special meeting, Kmart's stockholders will be asked to consider
and vote upon a proposal to adopt the merger agreement, to approve the
grant of restricted shares and options to Aylwin B. Lewis and to transact
such other business as may properly come before the special meeting or any
adjournment or postponement thereof.
Sears. At the
Sears special meetingerger agreement and to transact such other business
as may properly come before t, Sears' stockholders will be asked to
consider and vote upon a proposal to adopt the mhe special meeting or any
adjournment or postponement thereof.
We have received many retiree inquiries about this
proposed merger. As a result, we are setting forth below the "risk
factors" that this joint proxy statement-prospectus mentions for
stockholders in deciding whether to vote for adoption of the merger
agreement. These risk factors are in the 139 page document, plus
attachments, which were filed with the SEC. Please review all of the risk
factors very carefully to assist you in your voting decision.
RISK FACTORS
In addition to the other information contained in or
incorporated by reference into this joint proxy statement-prospectus,
including the matters addressed under the caption "Information Regarding
Forward-Looking Statements" on page 27, you should carefully consider the
following risk factors in deciding whether to vote for adoption of the
merger agreement.
Sears stockholders may not receive
the form of merger consideration that they elect.
The merger agreement contains provisions that are
designed to ensure that, in the aggregate, 45% of Sears shares will be
converted into cash and 55% of Sears shares will be converted into
Holdings common stock. The value of the share consideration at the time of
the mergers may be higher than the value of the cash consideration at such
time, or vice versa. If elections are made by Sears stockholders to
receive more cash or more shares of Holdings than these percentages,
either those electing to receive cash or those electing to receive shares
of Holdings, respectively, will have the consideration of the type they
selected reduced by a pro rata amount, and will receive a portion of their
consideration in the form that they did not elect to receive. Accordingly,
it is likely that a substantial number of Sears stockholders will not
receive a portion of the merger consideration in the form that they elect
and that the consideration they do receive will have a lower value than
what they elected to receive.
In connection with a support agreement, the ESL
Companies have agreed to elect to receive shares of Holdings common stock
in the Sears merger even if the value of the share consideration at the
time of the mergers is less than the cash consideration. Nonetheless, the
ESL Companies will be subject to proration, like all Sears stockholders,
if holders of more than 55% of the Sears shares elect shares of Holdings.
The ESL Companies as of the record date owned approximately 31.1 million
shares of Sears common stock or approximately 15% of the outstanding Sears
common stock.
Because the exchange ratios are
fixed, the market value of Holdings common stock issued to you may be less
than the value of your shares of Kmart common stock or Sears common stock.
Kmart stockholders and Sears stockholders who receive
shares in the mergers will receive a fixed number of shares of common
stock of Holdings rather than a number of shares with a particular fixed
market value. The market values of Kmart and Sears common stock at the
time of the mergers may vary significantly from their prices on the date
the merger agreement was executed, the date of this joint proxy
statement-prospectus or the date on which Kmart and Sears stockholders
vote on the mergers. Because the exchange ratio will not be adjusted to
reflect any changes in the market value of Kmart or Sears common stock,
the market value of the Holdings common stock issued in the mergers and
the Kmart and Sears common stock surrendered in the mergers may be higher
or lower than the values of such shares on such earlier dates, and may be
higher or lower than the $50.00 to be paid to Sears stockholders in the
cash portion of the Sears merger. Stock price changes may result from a
variety of factors that are beyond the control of Kmart and Sears,
including changes in their businesses, operations and prospects,
regulatory considerations and general and industry specific market and
economic conditions. Neither Kmart nor Sears is permitted to terminate the
merger agreement solely because of changes in the market price of either
party's common stock.
If you deliver your Sears shares to
the exchange agent to make an election, you will not be able to sell those
shares, unless you revoke your election prior to the election deadline or
the merger agreement is terminated.
The deadline for making a cash or share election for
Sears shares is 5:00 p.m., New York City time, on , 2005, the
day of the special meeting of Sears stockholders, unless the completion of
the Sears merger will occur more than four business days following the
date of this special meeting, in which case the election deadline will be
extended until two business days before the completion of the Sears
merger. After you submit a form of election, under the terms of the
election, you will not be able to sell any Sears shares covered by your
form of election, regardless of whether those shares are held in
certificated or book entry form, unless you revoke your election before
the deadline by providing written notice to the exchange agent. If you do
not revoke your election, you will not be able to sell your Sears shares
covered by a form of election prior to completion of the Sears merger. In
the time between your submission of a form of election and the completion
of the Sears merger, the trading price of Sears common stock may change,
and you might otherwise want to sell your Sears shares covered by a form
of election to gain access to cash, make other investments, or reduce the
potential for an adverse change in the value of your investment.
We may fail to realize the
anticipated benefits of the mergers.
The success of the mergers will depend, in part, on our
ability to realize the anticipated growth opportunities and cost savings
from combining the businesses of Kmart and Sears. Our managements have
conservatively estimated that the combined companies expect to realize
approximately $200 million in incremental operating profit synergies from
increased revenues by capitalizing on cross-selling opportunities between
Kmart's and Sears' proprietary brands and by converting a substantial
number of Kmart stores to the Sears nameplate over time. There can be no
assurance, however, that these cross-selling opportunities or conversions
will be successful.
Moreover, expanding the offering and distribution of
proprietary brands may impact the value of those brands and lead to
cannibalization of sales from either Sears or Kmart. There is also the
risk that national brands will not sell to the combined companies. In
addition, Holdings may be unable to realize the value it expects from the
combined real estate portfolio, including being able to differentiate
product offerings at its various locations. If these benefits are not
achieved, Holdings' results of operations could be materially adversely
affected.
Our managements have also conservatively estimated that
the combined entities expect to achieve annual cost savings of over
$300 million principally through improved merchandising and
non-merchandising purchasing scale as well as improved supply chain,
administrative and other operational efficiencies. However, to realize the
anticipated benefits from the mergers, we must successfully combine the
businesses of Kmart and Sears in a manner that permits those costs savings
and revenue synergies to be realized. In addition, we must achieve these
savings without adversely affecting revenues. If we are not able to
successfully achieve these objectives, the anticipated benefits of the
mergers may not be realized fully or at all or may take longer to realize
than expected.
The integration of Kmart and Sears
following the mergers will present significant challenges.
Kmart and Sears have operated and, until the completion
of the mergers, will continue to operate, independently. Kmart and Sears
will face significant challenges in consolidating functions, integrating
their organizations, procedures and operations in a timely and efficient
manner and retaining key Kmart and Sears personnel. The integration of
Kmart and Sears will be costly, complex and time consuming, and the
managements of Kmart and Sears will have to devote substantial resources
and efforts to it.
The integration process and other disruptions from the
mergers could result in the disruption of each company's ongoing
businesses or inconsistencies in standards, controls, procedures and
policies that adversely affect our ability to maintain relationships with
customers, suppliers, employees and others with whom we have business
dealings or to achieve the anticipated benefits of the mergers.
Directors of Kmart and Sears may have
potential conflicts of interest in recommending that you vote in favor of
the adoption of the merger agreement.
A number of directors of Kmart and a number of directors
of Sears who recommend that you vote in favor of the adoption of the
merger agreement have employment or severance agreements, equity
compensation and other benefit arrangements or other interests that
provide them with interests in the mergers that differ from yours. In
addition, a number of directors of Kmart and Sears will continue as
directors of Holdings while other directors will not, and in either case
Holdings will indemnify and provide insurance for their services as
directors of Kmart and Sears prior to the mergers. In particular, Kmart's
Chairman and one other director of Kmart have material relationships with
the ESL Companies, which are significant stockholders of Kmart and Sears.
The receipt of compensation or other benefits in the
mergers, the continuation of indemnification and insurance arrangements
for current directors of Kmart and Sears following completion of the
mergers, and relationships with significant stockholders of Kmart and
Sears may have influenced these directors in making their recommendation
that you vote in favor of the adoption of the merger agreement. You should
be aware of these interests when you consider your board's recommendation
that you vote in favor of the mergers.
Affiliates of the Chairman of
Holdings, whose interests may be different than your interests, will have
substantial influence over Holdings.
Assuming that Holdings issues approximately 146 million
shares pursuant to the mergers and depending upon the elections of Sears
stockholders to receive cash or stock consideration, the ESL Companies
would be expected to beneficially own between approximately 39% and 43% of
the outstanding shares of Holdings common stock immediately after the
mergers (including the beneficial ownership of shares of Holdings common
stock underlying the options and convertible notes of Kmart currently held
by the ESL Companies). The ESL Companies (other than ESL Investment
Management, L.L.C.) are controlled, directly or indirectly, by Edward S. Lampert,
the current Chairman of Kmart, and the designated Chairman of Holdings.
Mr. Lampert directly controls ESL Investment Management, L.L.C.
Accordingly, the ESL Companies, and thus Mr. Lampert, would have
substantial influence over many if not all actions to be taken by Holdings
stockholders after the mergers, including the election of the directors to
the Holdings board and transactions involving a change of control.
This substantial influence may have the effect of
discouraging offers to acquire Holdings because the consummation of any
such acquisition would likely require the consent of the ESL Companies.
The interests of the ESL Companies, which have investments in other
companies, may from time to time diverge from the interests of other
Holdings stockholders, particularly with regard to new investment
opportunities.
Following the mergers, Holdings will
have significantly less cash on hand than Kmart and Sears prior to the
mergers.
Following an assumed completion of the mergers in
March 2005 and after payment of the merger consideration and payment in
respect of options to purchase Sears common stock and all other pro forma
adjustments relating to the mergers, Holdings is expected to have
approximately $1.0 billion in cash and cash equivalents. In addition,
Holdings is expected to have approximately $5.8 billion in indebtedness,
including $640 million related to obligations under capital leases
($55 million short-term, $585 million long-term) and $1.1 billion of other short-term borrowing. The expected
cash on hand in March 2005 assumes a build-up of cash from the seasonal
low-point at the end of the third quarter 2004, 2004 holiday sales
consistent with seasonal buying patterns and Holdings' ability to maintain
access to the commercial paper markets. No assurances can be given as to
the actual amount of cash and cash equivalents that Holdings will have on
hand following the mergers.
As a result, Holdings will be required to obtain
additional financing to meet its liquidity needs. Although Holdings
anticipates entering into a credit facility prior to the completion of the
mergers, Holdings may not be able to obtain financing on terms that are
acceptable to it. Holdings' ability to obtain financing will be dependent
largely on its operating performance and its credit ratings from the major
credit ratings agencies. Standard and Poors has indicated that it expects
Holdings to have a below-investment grade long-term debt rating and
Moody's cut Sears' long-term debt rating following the announcement of the
proposed mergers. If Holdings' debt ratings are below investment grade or
if Holdings' operating performance were to be worse, its financing costs
could be higher than expected and its access to financing, and in
particular, the ability to issue commercial paper, could be limited. In
such a case, Holdings' financial flexibility could be limited, adversely
affecting its ability to grow and compete.
Holdings does not expect to pay
dividends for the foreseeable future.
Although Sears stockholders have historically received
quarterly dividends from Sears, Holdings does not expect to pay dividends
in the foreseeable future. Former Sears stockholders who become
stockholders of Holdings will no longer be able to rely on receiving
dividend payments, and instead they (and former Kmart stockholders) must
rely on increases in the trading price of Holdings common stock for any
return on their investment.
Holdings will be dependent upon key
personnel.
Following the mergers, Holdings will be dependent upon
the contributions of its senior management team, including Edward S.
Lampert (Chairman of Holdings), Alan J. Lacy (Vice Chairman and Chief
Executive Officer of Holdings), Aylwin B. Lewis (President of Holdings and
Chief Executive Officer of Kmart and Sears Retail), Glenn R. Richter
(Executive Vice President and Chief Financial Officer of Holdings),
William C. Crowley (Executive Vice President, Finance and Integration of
Holdings), and other key employees for its future success. While
Messrs. Lacy and Lewis have employment agreements with Holdings, Sears or
Kmart, if any of these executives, or other key employees, were to cease
to be employed by Holdings, including as a result of the integration of
Sears and Kmart following the mergers, Holdings could be adversely
affected.
The market price of Holdings' shares
after the mergers may be affected by factors different from those
currently affecting the shares of Kmart or Sears.
Although Holdings' business will be a combination of
Kmart's and Sears' businesses, this combination may be susceptible to
factors that did not have a material effect on Kmart or Sears as separate
businesses. Accordingly the results of operations of the combined
companies may be affected by factors different from those currently
affecting the results of operations of Kmart or Sears, and therefore the
uncertainty of the market's ability to value Holdings' business model or
to understand Holdings' results of operations may affect Holdings' stock
price in ways different from factors that currently affect the shares of
Kmart or Sears.
Former Sears stockholders who become
stockholders of Holdings will be governed by the restated certificate of
incorporation and restated by-laws of Holdings.
Sears stockholders who receive Holdings common stock in
the mergers will become Holdings stockholders and their rights as
stockholders will be governed by the restated certificate of incorporation
and restated by-laws of Holdings and Delaware corporate law. As a result,
there will be material differences between the current rights of Sears
stockholders and the rights they can expect to have as Holdings
stockholders. material differences between the current rights of Sears
stockholders and the rights they can expect to have as Holdings
stockholders.
For example, among other differences, Sears provides for
a staggered board of directors but Holdings does not, and thus an
acquisition or change in control of Holdings by a third party that
stockholders, in their judgment, might not have favored may be easier to
effect. Sears provides for the cumulative voting of directors but Holdings
does not, and thus a group of controlling stockholders, like the ESL
Companies, may be able to elect all of the directors of Holdings.
Moreover, New York corporate law differs in certain
respects from Delaware corporate law. For example, among other
differences, a stockholder becomes an "interested stockholder" of a
Delaware corporation at a lower ownership threshold than a stockholder of
a New York corporation but can effect a business combination at an earlier
date than an "interested stockholder" of a New York corporation. A merger
involving a New York corporation also requires the affirmative vote of at
least two-thirds of the outstanding shares instead of just a majority of
the outstanding shares of a Delaware corporation. Furthermore, the process
for stockholders to perfect appraisal rights differs under New York and
Delaware corporate law. For additional information, see "Comparison of
Stockholder Rights" beginning on page 117.
Holdings' restated certificate of
incorporation will not contain certain bankruptcy provisions that exist in
Kmart's current certificate of incorporation.
The restated certificate of incorporation of Holdings
will not have certain bankruptcy provisions that exist in the current
certificate of incorporation of Kmart. One bankruptcy provision has
already expired pursuant to its terms, and the other bankruptcy provisions
will expire in May 2005. In particular, Holdings' restated certificate of
incorporation will not include the prohibition against the issuance of
Kmart nonvoting equity securities on or prior to the second anniversary of
Kmart's emergence from bankruptcy protection or the rights of certain
named stockholders to designate directors to the board of directors of
Kmart until the annual meeting of Kmart stockholders for 2005.
We are parties to pending lawsuits in
connection with the mergers.
We are parties to several lawsuits filed by third
parties seeking monetary damages or injunctive relief, or both, in
connection with the mergers. Predicting the outcome of these lawsuits is
difficult; and an adverse judgment for monetary damages could have a
material adverse effect on the operations of Holdings after the mergers, a
preliminary injunction could delay or jeopardize the completion of the
mergers and an adverse judgment granting injunctive relief could
permanently enjoin the consummation of the mergers.
