Analysts say Lampert Excels as a Dealmaker

Kmart chief employs a hands-on approach to
control, improve operations of ailing companies 

SHERI HALL / The Detroit News 18nov04

It's with a tight fist and a wealth of knowledge that Edward Lampert built his fortune.

The 42-year-old billionaire — credited with orchestrating the merger of Kmart Corp. and Sears, Roebuck and Co., that was announced Wednesday — is a private investor who made his mark buying stock in established but financially ailing companies and then taking a hands-on approach to improve operations.

A Yale University graduate, he's known as a secretive, low-key player who likes to control how his money is spent.

Despite his efforts to avoid the limelight, Lampert — who is featured on the cover of Businessweek this week — has become one of the most talked-about investors in the nation among financial analysts and the press.

"He's a dealmaker who's going to try to create shareholder worth," said Leah Hartman, an analyst for CRT Capital Group LLC in Stamford, Conn. "The Lampert investment has been very much about hands-on control."

Besides Kmart, Lampert's most notable investments have been AutoZone, AutoNation and Payless Shoes. And he is the largest shareholder of Sears, with a 15 percent stake in the company.

Lampert's hedge fund, ESL Investments Inc., has racked up average returns of 29 percent a year — a record that helped him amass a fortune of $1.5 billion and placed him on Forbes list of the 400 wealthiest people in America.

But what put Lampert on the map was his purchase of 53 percent of Kmart in 2002 when the retailer was deep in bankruptcy. The investment gave him control of the bankruptcy process.

A consensus has since developed that Lampert is more focused on capitalizing on Kmart's real estate and stockpiling cash rather than rescuing the retail giant. But in a press conference Wednesday, Lampert insisted the combined company will focus on operations.

"I don't think any retailer should aspire to have its real estate be worth more than its operating business," he said. "The more money a store makes, the more valuable they are as an operating business, and that's something I think the combined company can do very well."

Lampert grew up in the prosperous suburbs of New York City. His father died when he was 14 years old, making him the man of the house.

With part-time jobs and student aid, Lampert managed to save enough to enroll in Yale University as an economics major. Upon graduating with honors in 1984, he landed a job in the high-powered arbitrage department of the Goldman Sachs investment bank.

There, he was responsible for predicting the success of newly-announced transactions, such as mergers, on the day they happened and then making immediate investment recommendations.

He left the job in 1988 to start ESL Investments.

Despite Lampert's gutsy deals, he probably made the biggest headlines in January 2003 when four thugs kidnapped him at gunpoint from his office in Greenwich, Conn., after trolling the Internet in search of the richest people in America. The kidnappers released Lampert two days later and eventually were arrested and convicted.

Later that week, Lampert returned to the Kmart bankruptcy negotiations.

Analyst Howard Davidowitz has compared Lampert to a young Warren Buffett, who made investors wealthy by turning Berkshire Hathaway into an investment firm.

"Lampert is brilliant. He's (done) exactly what he should do — making money for Kmart shareholders."

But others questioned whether Wednesday's deal will yield more success for Lampert.

"Eddie Lampert clearly has more information than you or I do," said Stephen J. Hoch, a marketing professor and department chairman at the Wharton School of Business.

Hoch questioned the comparison between Lampert and Warren Buffett, the legendary investor who became a billionaire through investments in insurance companies, corporate jets and newspapers.

"Retail is a different kind of business than Geico insurance," Hoch said. "In financial services, you lock a customer in. Retail has a recurring revenue model where the only thing you can lock in is the location."

source: http://www.detnews.com/2004/business/0411/18/A03-8572.htm 26nov04