SECURITIES AND EXCHANGE COMMISSION
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KMART CORPORATION
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KMART CORPORATION
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Dear Kmart Shareholder:
At the Annual Meeting of Stockholders to be held on June
3rd, 1994 shareholders are being asked to vote for an
important proposal concerning the company's specialty
retail businesses--the Specialty Retail Stock Proposal.
We believe that the Specialty Retail Stock Proposal and
related proposals are in the best interest of Kmart and
will maximize value for shareholders.
Over the past year, the Kmart Board has conducted an
extensive review of the company's specialty retailing
subsidiaries. Among other things, Kmart has looked at
each business to determine whether it should be sold or
spun off. As a result of this review, the Board
determined to divest PayLess Drug Stores and PACE
Membership Warehouse and promptly did so.
Certain stockholders have been calling for Kmart to also
sell its interests in the remaining specialty businesses-
-Borders and Walden (bookstores), Builders Square (home
improvement), OfficeMax (office supplies) and The Sports
Authority (sporting goods). The Board looked carefully
at this alternative and determined that now is NOT the
appropriate time to divest the remaining specialty retail
businesses. We believe that these businesses have the
potential for significant future growth and to sell them
now would deny Kmart shareholders the benefit of this
upside potential. Implementation of the Specialty Retail
Stock Proposal, including the sale of specialty targeted
stock representing 20% to 30% of the equity value of each
business would, in the Board's judgment, provide the
company with the most flexibility to realize the value of
these businesses.
The Board closely examined the possible sale of direct
subsidiary stock as well as the sale of specialty
targeted stock, and concluded that:
* In addition to providing the cash infusion and
independent market valuations that would be
achieved by the sale of direct stock, the
issuance of specialty targeted stock provides
the significant tax, credit and governance
benefits of continuing to operate as a
consolidated entity.
* Unlike a sale of direct stock, the sale of
specialty targeted stock can be accomplished on
a tax-free basis, resulting in significantly
greater net proceeds available to the company.
* There is no valid evidence that targeted stocks
trade at substantial discounts to shares of
stand-alone companies. There are over $30
billion of targeted stocks already in the
marketplace, and these stocks have historically
traded on the fundamentals of their underlying
businesses.
* The issuance of specialty targeted stock will
provide flexibility with respect to the
specialty businesses, including a possible
future sale or spin-off of one or more of the
businesses if that is appropriate.
* Specialty targeted stock will provide direct
incentives for employees in each specialty
store business by linking incentives and
compensation to the performance of that
business.
Neither Kmart management nor the Board is satisfied with
the results of the Kmart discount store business over the
last 15 months, or with the current price of Kmart stock.
We are committed to taking strong action in implementing
initiatives to improve the performance and results of
Kmart's core business.
Along with the aggressive U.S. Kmart modernization
program, the Specialty Retail Stock Proposal is an
important part of the overall Kmart strategy to realign
its businesses and improve results. The Board of
Directors strongly believes that the Specialty Retail
Stock Proposal is in the best interest of Kmart and will
maximize value for shareholders.
We urge you to vote FOR the company's proposals, and
thank you for your support.
Sincerely,
BOARD OF DIRECTORS
KMART CORPORATION
MAY 25, 1994
If you have questions or need assistance in
voting your shares, please contact Georgeson & Co., the
company's Information Agent, at 1-800-233-2064
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