Gambling Billionaire Lambert at Heart of Sears-Kmart Merger 

DAVID RUNK / AP 18nov04

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 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 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 also is 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.

Yesterday, 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.

Such a move might have been similar to the way that Buffett converted Berkshire Hathaway, the one-time textile company, into an investment empire — leading at least a few experts to be skeptical.

"Both Kmart and Sears need a long-term strategy for turnaround. ... Maybe he's turning a corner and he wants to see these companies succeed long term," said Theresa Williams, a retailing expert at the Kelley School of Business at Indiana University. "He's a genius when it comes to financial manipulation, but does that translate to retail?"

Lampert, who also spoke at yesterday's news conference, appeared committed to making the Sears-Kmart combination work.

"We're really not looking to have two separate cultures. We're really trying to blend this into one great culture," Lampert said. "We really want it to be very much customer-focused and store-focused."

He also hinted his investment firm sees long-term promise in the deal.

"ESL and its affiliates, our affiliates, have elected to receive all stock in the merger," Lampert said. "We think that that's something that is a very important sign of our confidence in the combined company."