Judge OKs Kmart Deal to Sell Its Web Unit

A U.S. Bankruptcy Court on Wednesday approved discount retailer Kmart Corp.’s deal to sell its Bluelight.com Internet access unit, after Kmart resolved issues raised by Microsoft Corp. and three states concerning software licenses and taxation.

U.S. Bankruptcy Judge Susan Pierson Sonderby overruled an objection from Kmart’s lenders, led by J.P. Morgan Chase & Co., which had asked that proceeds from the $8.4-million sale be set aside instead of going directly to Kmart.

Software giant Microsoft and others filed objections last week to the proposed sale of Bluelight.com’s Internet access business to United Online Inc., citing software licensing and tax issues. United Online is based in Westlake Village.

Some of Kmart’s lenders and the states of Illinois, Washington and California also objected to the deal, which was announced in September.

Bluelight.com, which consists of the Internet service provider and Kmart’s e-commerce Web site, was valued at about $80 million in August 2001 for the combined company.

Subscribers to the service once numbered 7 million, but have dwindled to about 165,000. Kmart, which filed for Chapter 11 bankruptcy protection in January, is selling only the Internet service assets.

According to court documents, Microsoft had objected to the deal because it said Kmart had not specifically identified which Microsoft software licenses it planned to transfer to United Online as part of the sale.

Illinois and Washington objected because they said Kmart was seeking exemption from various local and state taxes.