Kmart Is Considering Alternatives to Failed Stock Plan

Kmart Corp. management, having failed to win shareholder backing for its proposal to issue new classes of stock, says it will look for alternatives to the rejected plan.

The beleaguered retailer had no backup plan should the proposal fail, Chairman Joseph Antonini said Friday during a recess in Kmart’s annual meeting.

Antonini said in a statement Monday that Kmart is “committed . . . to reviewing all alternatives,” although he did not specify what those might be.

Kmart had sought to issue stock representing 20% to 30% of the value of its four specialty retailing units. Under the plan, the stocks would have reflected the units’ earnings but not true equity interests.

The units are Borders/Walden, which sells books and records; Builders Square, a home-improvement products chain; OfficeMax, an office products chain, and the Sports Authority, which sells sporting goods.

With the stock plan’s defeat, management’s options now include selling off all or some of the units, either to another company or through initial public offerings in which investors would own equity, Salomon Bros. analyst Jeffrey Feiner said in a report. Another possibility, Feiner said, would be a spinoff to shareholders of shares in the four divisions. “Even a leveraged buyout by management could be a possibility,” he said.

Feiner and others have also said Kmart might sell all or part of its 21% stake in Coles Myer Ltd., Australia’s largest retailer. Last week, the day before Kmart shareholders turned down the specialty retail stock plan, Antonini told Coles Myer Chairman Solomon Lew that Kmart had no plan to sell its stake. The Coles Myer stake would be worth about $863.8 million.

The next Kmart board meeting is scheduled for June 21.

Antonini said the failure of the specialty stock plan will not hurt Kmart’s ability to complete the modernization of more than 2,300 stores.

Analysts saw the plan as a way to raise between $600 million and $900 million for the modernizations, but Kmart management maintained that it put forth the proposal because the stock market was underestimating the value of the specialty units within the overall corporation. A separate class of stock for each unit would have changed that, management said.