November 18, 2004 in Business

Kmart chief kept observers guessing

Associated Press
 
Associated Press photo

Kmart chairman Edward Lampert, left, and Sears CEO Alan Lacy listen during a news conference to announce the merger of Kmart and Sears in New York on Wednesday.
(Full-size photo)

DETROIT — For the last year and a half, industry observers have speculated about Kmart Holding Corp. chairman Edward Lampert’s plans since the troubled retailer emerged from bankruptcy.

On Wednesday, they found out. Kmart announced an $11 billion acquisition of Sears that caught Wall Street off guard — but was hardly a surprise from a Lampert, a self-made billionaire who has been likened to Warren Buffett for his well-researched gambles and low profile.

A Yale graduate, Lampert worked briefly for whiteshoe Wall Street firm Goldman Sachs before starting his own firm, ESL Investments, at the age of 26. He holds a 15 percent stake in Sears and controls Kmart through ESL, which is based in Greenwich, Conn.

By 28, Lampert was part owner of the Texas Rangers baseball team along with President Bush.

A tightfisted figure with a reputation for coolness under fire and a penchant for calling the shots when it comes to money, Lampert’s worth is currently estimated at $1.7 billion, making him No. 142 on Forbes latest list of wealthiest Americans.

“Eddie’s a genius. He’s very able at redeploying assets and going into areas to get the best return,” said Martin Whitman, whose Third Avenue Management LLC was a major investor during Kmart’s bankruptcy.

Lampert, who declined to be interviewed for this story, became Kmart’s chairman as the company emerged from bankruptcy protection in May 2003. The 42-year-old built his fortune by investing in a few solid, unflashy companies like AutoNation Inc., Office Depot Inc. and Payless ShoeSource Inc., based on their value prospects — a technique used by Buffett.

For all his wealth, he has avoided the headlines. Lampert for years drove a beat-up car and lived in a rented apartment before buying a $20 million mansion in 1999. He is also a contributor to Republican causes, including Bush’s re-election campaign this year.

Lampert’s privacy was shattered, though, in January 2003, the same month ESL emerged as one of the main investors funding Kmart’s turnaround. He was kidnapped in the wealthy New York suburb of Greenwich, where he lives, and held hostage in a motel room for just over a day — before being dropped off unharmed near the Greenwich police station.

Except for a statement of thanks to authorities, friends and business partners, Lampert has mostly refused to discuss his ordeal — though he did appear to show some forgiveness toward his abductors. According to court testimony, Lampert told a probation officer that he hoped his abductors would get an education in prison and have the chance to be rehabilitated.

Lampert bounced back from the kidnapping and quickly stepped up his role in Kmart — eventually overseeing four straight profitable quarters following three years of losses.

On Wednesday, he got much of the credit for closing the blockbuster deal with Sears.

“The speed at which this thing was done, it’s astounding to me. I found out about it about two weeks ago,” said Kmart’s recently appointed president and chief executive Aylwin Lewis at a news conference in New York.

The deal surprised those who had speculated that Lampert’s reputation for maximizing shareholder value would prompt him to sell off Kmart’s retail business, capitalizing on its vast and valuable real estate holdings.

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