Combination Creates 3rd Largest U.S. Retailer With $55 Billion in Annual Revenues; Will Have Broader Retail Presence and Improved Scale and Operational Efficiency

Kmart Holding Corporation (NASDAQ:KMRT) and Sears, Roebuck and Co. (NYSE:S) announced today they have signed a definitive merger agreement that will combine Sears and Kmart into a major new retail company named Sears Holdings Corporation. Sears Holdings will be the nation's third largest retailer, with approximately $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores.

Both Sears, Roebuck and Kmart have made significant strides in transforming their organizations, and the merger will further accelerate this process for both companies. Sears Holdings will be headquartered in Hoffman Estates, IL, and Kmart will continue to have a significant presence in Troy, MI. The combined business will have a broader retail presence and improved scale through a national footprint of nearly 3,500 retail stores. The combined company will also benefit from improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management.

Under the terms of the agreement, which was unanimously approved by both companies' boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears, Roebuck shareholders will have the right to elect $50.00 in cash or 0.5 shares of Sears Holdings (valued at $50.61 based on yesterday's closing price of Kmart shares) for each Sears, Roebuck share. Shareholder elections will be prorated to ensure that in the aggregate 55 percent of Sears, Roebuck shares will be converted into Sears Holdings shares and 45 percent of Sears, Roebuck shares will be converted into cash. The current value of the transaction to Sears, Roebuck shareholders is approximately $11 billion. The transaction is expected to be tax-free to Kmart shareholders and tax-free to Sears, Roebuck shareholders to the extent they receive stock.

Edward S. Lampert, chairman of Kmart, will be the chairman of Sears Holdings. He will be joined in an Office of the Chairman by Alan J. Lacy, current chairman and chief executive officer of Sears, and Aylwin B. Lewis, current president and chief executive officer of Kmart. Mr. Lacy will be vice chairman and chief executive officer of Sears Holdings; Mr. Lewis will be president of Sears Holdings and chief executive officer of Kmart and Sears Retail. Glenn R. Richter, currently executive vice president and chief financial officer of Sears, Roebuck, will be executive vice president and chief financial officer of Sears Holdings. William C. Crowley, currently senior vice president - finance of Kmart and a Kmart Board member will be executive vice president, finance and integration of Sears Holdings.