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2005. EDGAR Online, Inc.

Filed by Sears, Roebuck and Co.

Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Sears, Roebuck and Co. (Commission File No. 1-416)

Kmart and Sears: Key Messages

Sears and Kmart are proposing a merger of the two companies that would result in the creation of a new parent company, Sears Holdings Corporation, with headquarters in Hoffman Estates. The intent is to create a powerful retail leader that accelerates the pre-existing strategies of both companies and increases the likelihood of their success.

LOCATIONS: NO. 2 U.S. RETAILER

Merger would dramatically advance Sears’ off-mall store-growth strategy by increasing its retail presence and points of distribution • Combined company would operate 2,353 full-line and off-mall stores, second only to Wal-Mart in the retail industry

• Increasing number of locations benefits suppliers and better leverages supply chain — for example, Kenmore brand would be available at more than 3,100 locations

• Combination would maintain or grow Sears network of 1,100 specialty retail stores

• Sears is building on customer response to convenience of Sears Grand, with the expectation that a substantial number of Kmart stores will be converted to the Sears nameplate, in addition to the 50 Kmart stores recently acquired by Sears

PRODUCTS: BETTER/BEST OFFERING

Merger would improve Kmart’s product offering, upgrade its on-line channel and transform its in-store experience • The combined home business would feature a dominant home appliance franchise, anchored by market share leader Kenmore

• Led by the venerable Craftsman brand, collective enterprise would possess strong market positions in tools, lawn & garden, home electronics and automotive repair and maintenance businesses

• The home fashion offerings of the two companies would feature the Martha Stewart Everyday brand, which is offered exclusively in the U.S.

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at Kmart and exclusively in Canada at Sears Canada • In apparel, the combination of Lands’ End, Kmart’s Jaclyn Smith, Joe Boxer and Route 66 labels, with Sears’ Apostrophe and Covington brands, would offer customers broad clothing options for the entire family

• Sears is the nation’s leading multicultural marketer, with hundreds of full-line stores having bilingual staff and signage, while Kmart’s Store of the Neighborhood features the exclusive Thalia Sodi collection

• Sears’ Customer Direct business, already with $2 billion in annual revenues and industry-leading features such as my virtual decorator and buy on-line pick up in-store, would extend its reach to include kmart.com

1 • The growth prospects for Sears’ home services business, already the nation’s largest product repair and installed home improvement provider, would be enhanced through greater integration across a considerably larger retail operation

TRANSACTION: CREATING VALUE

Leadership of both companies is committed to managing the new Sears Holdings Corporation to optimize value for the benefit of customers, employees and shareholders of this new force in American retail • Sears shareholders will receive a combination of cash and new Sears Holdings Corporation common stock valued at $50.61 per Sears share — an aggregate value of approximately $11 billion

• Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share

• The new company expects to achieve annual cost savings of approximately $500 million, through incremental gross margin from revenue synergies, as well as improved merchandising and non-merchandising purchasing scale and improved supply chain, administrative and other operating efficiencies

• The transaction, after giving effect to estimated synergies, is expected to be accretive to earnings per share in the first year, before one-time restructuring costs

• The merger is expected to close by the end of March 2005

• Mr. Crowley and Mr. Richter will jointly lead an integration team of key operating executives from both companies to drive planning and execution of the integration of the companies’ operations

The new management team will be working closely together to drive this great new company forward — neither participant would be in this position without the diligence, commitment and hard work of their dedicated employees

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Sears shareholders will receive a combination of cash and new Sears Holdings Corporation common stock valued at $50.61 per Sears share — an aggregate value of approximately $11 billion

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• Edward S. Lampert, chairman of Kmart, will be the chairman of Sears Holdings. He will be joined in an Office of the Chairman by Alan J. Lacy, current chairman and CEO of Sears, and Aylwin B. Lewis, current president and CEO of Kmart

• Mr. Lacy will be vice chairman and CEO of Sears Holdings; Mr. Lewis will be president of Sears Holdings and CEO of Sears Retail. Glenn R. Richter, currently executive vice president and CFO of Sears, Roebuck, will become executive vice president and CFO of Sears Holdings. William C. Crowley, currently senior vice president — finance of Kmart and a Kmart board member, will be executive vice president, finance and integration of Sears Holdings

• Messrs. Lampert, Lacy and Lewis will join a ten-member Sears Holdings Board of Directors, which will include a total of seven members of the current Kmart board and three members of the current Sears, Roebuck board

• The merger positions both companies as stronger competitors with greater resources — financial, distribution, scale and people – that will increase their ability to improve business fundamentals

• The combination positions both Sears and Kmart to refine their retail distribution portfolios by identifying the most desirable retail locations and determining to what extent monetizing selected real estate makes sense

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# # #

In connection with the proposed transaction, Sears and Kmart will be filing proxy statements and other materials with the Securities and Exchange Commission. Please read these materials when they are available because they contain important information. Sears and its officers and directors may be deemed to be participants in the solicitation of proxies with respect to the proposed transaction matters. Information regarding such individuals is included in Sears’ proxy statements and Annual Reports on Form 10-K previously filed with the SEC, and in the proxy statement relating to the proposed transaction when it becomes available. Investors may obtain a free copy of the proxy statements and other relevant documents at the SEC’s website at http://www.sec.gov.

# # #

This document contains forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from expected results. Risks and uncertainties include failure to quickly realize cost-savings from the transaction as a result of technical, logistical, competitive and other factors; competitive conditions in retail; changes in consumer confidence, tastes, preferences and spending; the availability of consumer debt; the successful execution of, and customer response to, our strategic initiatives, including the Full-line Store strategy and the conversion and integration of stores and other new store locations; the pace of growth in our store locations; the possibility that we will identify new business and strategic options; the outcome of pending legal proceedings; anticipated cash flow; changes in our debt ratings and cost of funds; general economic conditions and normal business uncertainty. We intend the forward-looking statements to speak only as of the time first made and we do not undertake to update or revise them as more information becomes available.

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End of Filing

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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 16, 2004

Sears, Roebuck and Co.

(Exact name of registrant as specified in its charter)

New York 1-416 36-1750680 (State or other jurisdiction of (Commission (IRS Employer

incorporation) File Number) Identification No.) 3333 Beverly Road, Hoffman Estates, Illinois

60179

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (847) 286-2500

Not Applicable

(Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) þ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12) o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13.e-4(c)

TABLE OF CONTENTS

Item 8.01 Other Events. Item 9.01 Financial Statements and Exhibits. SIGNATURES EXHIBIT INDEX EX-99.1 PRESS RELEASE

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Table of Contents Item 8.01 Other Events. On November 16, 2004, Sears, Roebuck and Co. (the “Company”) and Kmart Holding Corporation (“Kmart”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company and Kmart have agreed to effect a business combination transaction whereby the Company and Kmart would become wholly-owned subsidiaries of a newly organized Delaware corporation (“Holdco”) to be named “Sears Holdings Corporation.” Kmart shareholders will receive one share of Holdco common stock for each Kmart share. Sears shareholders will have the right to elect $50.00 in cash or 0.5 of a Holdco share, subject to proration. Consummation of the transaction is subject to various conditions, including the approval of the stockholders of the Company and Kmart. A copy of the joint press release of the Company and Kmart announcing the execution of the Merger Agreement is included herein as Exhibit 99.1. The joint press release is incorporated herein by reference and the foregoing description of such transaction is qualified in its entirety by reference to such press release. The information required by Item 1.01 will be filed in a separate Current Report on Form 8-K. Stockholders are urged to read the joint proxy statement/prospectus regarding the proposed transaction when it becomes available, because it will contain important information. Stockholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about the Company and Kmart, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to the Company or Kmart. Information regarding the participants in the proxy solicitation and a description of their direct and indirect interest, by security holdings or otherwise, is contained in the materials filed with the SEC by the Company on April 30, 2004 and by Kmart on April 8, 2004. Item 9.01 Financial Statements and Exhibits. (c) Exhibits.

99.1

Press Release, dated November 17, 2004.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SEARS, ROEBUCK AND CO.

Date: November 17, 2004 By: /s/ Andrea L. Zopp Name: Andrea L. Zopp Title: Senior Vice President & General Counsel Table of Contents

EXHIBIT INDEX

Exhibit No. Description 99.1

Press Release, dated November 17, 2004.

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Contacts:

For Kmart Holding Corporation For Sears, Roebuck & Co. Jon Gieselman Edgar P. McDougal 248-463-1021 847-286-9669 Steven Lipin/Cindy Leggett-Flynn George Sard Brunswick Group Citigate Sard Verbinnen 212-333-3810 212-687-8080

KMART HOLDING CORPORATION AND SEARS, ROEBUCK AND CO. AGREE TO MERGE

Combination Creates 3rd Largest U.S. Retailer With $55 Billion in Annual Revenues; Will Have Broader Retail Presence and Improved Scale and Operational Efficiency

Troy, MI, and Hoffman Estates, IL, November 17, 2004 – Kmart Holding Corporation (NASDAQ: KMRT) and Sears, Roebuck and Co. (NYSE: S) announced today they have signed a definitive merger agreement that will combine Sears and Kmart into a major new retail company named Sears Holdings Corporation. Sears Holdings will be the nation’s third largest retailer, with approximately $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores. Both Sears, Roebuck and Kmart have made significant strides in transforming their organizations, and the merger will further accelerate this process for both companies. Sears Holdings will be headquartered in Hoffman Estates, IL, and Kmart will continue to have a significant presence in Troy, MI. The combined business will have a broader retail presence and improved scale through a national footprint of nearly 3,500 retail stores. The combined company will also benefit from improved operational efficiency in areas such as procurement, marketing, information technology and supply chain management. Under the terms of the agreement, which was unanimously approved by both companies’ boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears, Roebuck shareholders will have the right to elect $50.00 in cash or 0.5 shares of Sears Holdings (valued at $50.61 based on yesterday’s closing price of Kmart shares) for each Sears, Roebuck share. Shareholder elections will be prorated to ensure that in the aggregate 55 percent of Sears, Roebuck shares will be converted into Sears Holdings shares and 45 percent of Sears, Roebuck shares will be converted into cash. The current value

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of the transaction to Sears, Roebuck shareholders is approximately $11 billion. The transaction is expected to be tax-free to Kmart shareholders and tax-free to Sears, Roebuck shareholders to the extent they receive stock. Edward S. Lampert, chairman of Kmart, will be the chairman of Sears Holdings. He will be joined in an Office of the Chairman by Alan J. Lacy, current chairman and chief executive officer of Sears, and Aylwin B. Lewis, current president and chief executive officer of Kmart. Mr. Lacy will be vice chairman and chief executive officer of Sears Holdings; Mr. Lewis will be president of Sears Holdings and chief executive officer of Sears Retail. Glenn R. Richter, currently executive vice president and chief financial officer of Sears, Roebuck, will be executive vice president and chief financial officer of Sears Holdings. William C. Crowley, currently senior vice president — finance of Kmart and a Kmart Board member will be executive vice president, finance and integration of Sears Holdings. Messrs. Lampert, Lacy, and Lewis will join a ten-member Sears Holdings board of directors, which will include a total of seven members of the current Kmart board and three members of the current Sears, Roebuck board. Sears Holdings will act as the holding company for the Sears and Kmart businesses, which will continue to operate separately under their respective brand names. Mr. Lampert said, “The comb ination of Kmart and Sears is extremely compelling for our customers, associates and shareholders as it will create a powerful leader in the retail industry, with greatly expanded points of distribution, leading proprietary home and apparel brands and significant opportunities for improved scale and operating efficiencies. The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own.” ESL Investments and its affiliates, which are controlled by Mr. Lampert, have agreed to vote all Kmart and Sears, Roebuck shares they own in favor of the merger and to elect stock in the transaction with respect to their shares of Sears, Roebuck. Mr. Lacy said, “The combination will greatly strengthen both the Sears and Kmart franchises by accelerating the Sears off-mall growth

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Under the terms of the agreement, which was unanimously approved by both companies’ boards of directors, Kmart shareholders will receive one share of new Sears Holdings common stock for each Kmart share. Sears, Roebuck shareholders will have the right to elect $50.00 in cash or 0.5 shares of Sears Holdings (valued at $50.61 based on yesterday’s closing price of Kmart shares) for each Sears, Roebuck share. Shareholder elections will be prorated to ensure that in the aggregate 55 percent of Sears, Roebuck shares will be converted into Sears Holdings shares and 45 percent of Sears, Roebuck shares will be converted into cash. The current value

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of the transaction to Sears, Roebuck shareholders is approximately $11 billion. The transaction is expected to be tax-free to Kmart shareholders and tax-free to Sears, Roebuck shareholders to the extent they receive stock.

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strategy and enhancing the brand portfolio of both companies. This will clearly be a win for both companies’ customers while significantly enhancing value for all shareholders. We will have a total combined store base of nearly 3,500 stores and the leading service organization in the industry capable of a major expansion to serve the needs of existing Kmart and Sears customers.”

2 Mr. Lewis said, “Kmart has made great progress over the past 18 months to strengthen the organization in terms of profitability and product offerings. We believe the combination of Kmart and Sears will create a true leader in the retail industry – both as a key part of local communities and as a national presence. Together, we will further enhance our capabilities to better serve customers by improving in-store execution and ultimately transforming the customer’s in-store experience.” Sears Holdings will feature a powerful home appliance franchise as well as strong positions in tools, lawn and garden, home electronics, and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman, and DieHard. The company will have a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith, and Joe Boxer as well as the Apostrophe and Covington brands. It will also have Martha Stewart Everyday products, which are now offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. Kmart specialty retail stores will continue to carry their current lineup in proprietary home and fashion lines including Thalia Sodi, Jaclyn Smith, Joe Boxer, Martha Stewart Everyday, Route 66 and Sesame Street. The combination of the two companies is conservatively estimated to generate $500 million of annualized cost and revenue synergies to be fully realized by the end of the third year after closing. The transaction, after giving effect to estimated synergies, is expected to be significantly accretive to earnings per share in the first year before one-time restructuring costs. The companies expect to realize approximately $200 million in incremental gross margin from revenue synergies by capitalizing on cross-selling opportunities between Kmart and Sears’ proprietary brands and by converting a substantial number of off-mall Kmart stores to the Sears nameplate in addition to the 50 Kmart stores Sears acquired earlier this year. The company expects to achieve annual cost savings of over $300 million principally through improved merchandising and non-merchandising purchasing scale as well as improved supply chain, administrative and other operational efficiencies. In addition, the combined company will complete a full store asset review as part of a plan to monetize non-strategic real estate assets as appropriate. Mr. Crowley and Mr. Richter will jointly lead an integration team of key operating executives from both companies to drive planning and execution of the integration of the companies’ operations.

3 The merger, which is expected to close by the end of March 2005, is subject to approval by Kmart and Sears shareholders, regulatory approvals and customary closing conditions. Lehman Brothers served as financial advisor to Kmart, and Simpson Thacher & Bartlett LLP provided legal counsel to Kmart. Morgan Stanley served as financial advisor to Sears, and Wachtell, Lipton, Rosen & Katz provided legal counsel to Sears. Investor/Media Meeting and Webcast Kmart and Sears will hold a meeting for the investment community and the media today at 9:30 EST. Investors and the media are invited to attend the meeting at The Westin New York, 270 West 43rd Street (at 8th Avenue) in the Majestic ballroom on the 5th floor. Those unable to attend can dial in to a conference call at (888) 802-8577 (domestic) or (973) 633-1010 (international) or listen to a webcast at kmart.com or at http://www.sears.com/investors under “Presentations & Audio Archives.” A telephone replay will be available beginning at approximately noon today. The replay number is (877) 519-4471 (domestic) or (973) 341-3080 (international). Access code is 5416820. A replay of the event also will be available at sears.com and kmart.com. About Kmart Holding Corporation Kmart Holding Corporation and its subsidiaries (together, “Kmart”) is a mass merchandising company that offers customers quality products through a portfolio of exclusive brands that include Thalia Sodi, Jaclyn Smith, Joe Boxer, Martha Stewart Everyday, Route 66 and Sesame Street. For more information visit the Company’s website at www.kmart.com.

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About Sears, Roebuck and Co. Sears, Roebuck and Co. is a leading broadline retailer providing merchandise and related services. With revenues in 2003 of $41.1 billion, the company offers its wide range of home merchandise, apparel and automotive products and services through more than 2,300 Sears-branded and affiliated stores in the U.S. and Canada, which includes approximately 870 full-line and 1,100 specialty stores in the U.S. Sears also offers a variety of merchandise and services through sears.com, landsend.com, and specialty catalogs. Sears is the only retailer where consumers can find each of the Kenmore, Craftsman, DieHard and Lands’ End brands together — among the most trusted and preferred brands in the U.S. The company is the largest provider of product repair services with more than 14 million service calls made annually. For more information, visit the Company’s website at www.sears.com.

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving Kmart and Sears, including future financial and operating results, the new company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Kmart’s and Sears’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure of Kmart and Sears stockholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; competition and its effect on pricing, spending, third-party relationships and revenues. Additional factors that could cause Kmart’s and Sears’s results to differ materially from those described in the forward-looking statements can be found in the 2003 Annual Reports on Forms 10-K of Kmart and Sears filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov). Stockholders are urged to read the joint proxy statement/ prospectus regarding the proposed transaction when it becomes available, because it will contain important information. Stockholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Kmart and Sears, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Kmart Holding Corporation, 3100 West Big Beaver Road, Troy, Michigan, 48084 Attention: Office of the Secretary, or to Sears, Roebuck and Co., 3333 Beverly Road, Hoffman Estates, Il. Attention: Office of the Secretary. The respective directors and executive officers of Kmart and Sears and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Kmart’s directors and executive officers is available in its proxy statement filed with the SEC by Kmart on April 8, 2004, and information regarding Sears’ directors and executive officers is available in its proxy statement filed with the SEC by Sears on April 30, 2004. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

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End of Filing

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Filed by Sears, Roebuck and Co.

Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934

Subject Company: Sears, Roebuck and Co. (Commission File No. 1-416)

Kmart and Sears: Creating a Powerful Retail Leader New York, NY November 17, 2004


This presentation contains statements about cost and revenue synergies of the proposed transaction, expected accretion to earnings, and certain other "forward-looking statements" that are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Following are some of the risks and uncertainties that could affect our financial condition or results of operations, and could cause actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied by these forward-looking statements: failure to quickly realize cost-savings from the transaction as a result of technical, logistical, competitive and other factors; competitive conditions in retail and related services industries; changes in consumer confidence, tastes, preferences and spending; the availability and level of consumer debt; the successful execution of, and customer response to, our strategic initiatives, including the Full-line Store strategy and the conversion and integration of the Kmart stores and other new store locations; the pace of growth in our store locations, which may be higher or lower than anticipated; the possibility that we will identify new business and strategic options for one or more of its business segments, potentially including selective acquisitions, dispositions, restructurings, joint ventures and partnerships; trade restrictions, tariffs, and other factors potentially affecting our ability to find qualified vendors and access products in an efficient manner; our ability to successfully implement its initiatives to improve our inventory management capabilities; the outcome of pending legal proceedings; anticipated cash flow; social and political conditions such as war, political unrest and terrorism or natural disasters; the possibility of negative investment returns in our pension plan; changes in interest rates; volatility in financial markets; changes in our debt ratings, credit spreads and cost of funds; the possibility of interruptions in systematically accessing the public debt markets; general economic conditions and normal business uncertainty. In addition, we typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. While we believe that its forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend the forward-looking statements to speak only as of the time first made and we do not undertake to update or revise them as more information becomes available. Forward-Looking Statements


Stockholders are urged to read the joint proxy statement/prospectus regarding the proposed transaction when it becomes available, because it will contain important information. Stockholders will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Kmart and Sears, without charge, at the SEC's Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Kmart Holding Corporation, 3100 West Big Beaver Road, Troy, Michigan, 48084 Attention: Office of the Secretary, or to Sears, Roebuck and Co., 3333 Beverly Road, Hoffman Estates, Il. Attention: Office of the Secretary. Information regarding the participants in the proxy solicitation and a description of their direct and indirect interest, by security holdings or otherwise, is contained in the materials filed with the SEC by Kmart on April 8, 2004 and by Sears on April 30, 2004. Additional Information

http://www.sec.gov)


Agenda Merger Overview Strategic Rationale Timeline Summary Q&A


Merger Overview Combination of Kmart and Sears to form nation's third largest broadline retailer: Approximately $55 billion in annual revenues Nearly 3,500 store locations: 2,350 Full-line and Off-mall stores 1,100 Specialty stores Establishment of Sears Holdings Corporation


Merger Overview Transaction Details Kmart shares to be converted to Sears Holdings common stock at a rate of 1 to 1 Sears, Roebuck and Co. shares: 55% converted to Sears Holdings common stock at rate of 1 to 0.5 45% converted to cash at rate of $50 per share Shareholders able to elect between cash and stock subject to proration Stock portion of merger consideration is tax free to Kmart and Sears shareholders


Merger Overview Board Representation 10 members on Sears Holdings' Board of Directors 7 members from Kmart Holdings Board 3 members from Sears, Roebuck Board Messrs. Lampert, Lacy, and Lewis will sit on Board Operational Structure Sears Holdings Corp. to be headquartered in Hoffman Estates, Illinois Separate retail organizations maintained: Significant Kmart presence in Troy, Michigan Sears headquarters in Hoffman Estates, Illinois Edward S. Lampert -- Chairman of Sears Holdings Corp. Alan J. Lacy -- Vice Chairman, CEO of Sears Holdings Corp. Aylwin B. Lewis -- President of Sears Holdings Corp., CEO of Kmart and Sears Retail Office of the Chairman


Strategic Rationale: Kmart Aylwin Lewis


Strategic Rationale: Sears Alan Lacy


Combined Retail Sales Provide Scale and Strong Foundation for Growth Wal-Mart Home Depot Sears Holdings Target Sears Lowe's Best Buy Kmart JCPenney Kohl's Circuit City 75000 64816 60817 46781 41124 30838 24547 19693 17786 10282 9745 2003 Revenues ($B) * *Reported revenue totals include $4.4B of revenue from former Credit & Financial products segment *


Combination to Result in Second Largest Retailer in Full-line and Off-mall Locations Wal-Mart Sears Holdings Home Depot Kmart Target JCPenney Lowe's Sears Best Buy Circuit City Kohl's 2949 2353 1707 1482 1313 1020 952 871 608 599 542 *Excludes Mervyn's and Marshall Field's stores *


Strategic Rationale Merger accelerates execution of pre-existing strategies of both retailers Provides Kmart with more unique and differentiated products Enables combined company to rapidly grow off-mall in locations closer, more convenient to the customer Leverages the scale and financial strength of the combined company Winning real estate strategy Significantly expands Sears points of distribution in key markets; High concentration of urban and high-density suburban locations Opportunity to monetize non-strategic real estate as appropriate Combines wealth of leading proprietary brands to further differentiate stores from competition Craftsman, Kenmore, Lands' End, DieHard Martha Stewart Everyday, Joe Boxer, Jaclyn Smith, Sesame Street


Strategic Rationale Generates significant synergies: Conservatively estimated at $500 million annually: $200 million from revenue synergies Substantial number of store locations to be converted to Sears nameplate Cross-selling of proprietary brands $300 million from cost savings Merchandise and non-merchandise procurement Supply chain, administrative support, other Savings fully realized by end of third year of combined operations Expect transaction to be accretive in year one, excluding one-time costs Creation of strong management team Cultural change to be driven by committed team Disciplined investment strategies Committed to operational excellence


Timeline Terms of merger agreement have been unanimously approved by boards of directors of both Kmart and Sears Merger is subject to shareholder and regulatory approval, and customary closing conditions Expect to close merger by the end of March, 2005


Summary The combination of Kmart and Sears will: Leverage the strength of two leading retailers Create compelling, differentiated customer offerings Create shareholder value through significant synergies Create a winning culture


Kmart and Sears: Creating a Powerful Retail Leader New York, NY November 17, 2004

End of Filing

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