After it had appeared that the two sides might be heading for a protracted and acrimonious court battle, the bankrupt Kmart Corporation and Penske have announced that they have reached an agreement on the shutdown of auto service centres at more than 550 Kmart stores across the United States. It is being described as an ‘orderly wind-down’.
Kmart and Penske Auto Stores went to court after a breakdown in talks that led Penske to unilaterally close 500 of its car repair centres at Kmart stores. Penske claims that Kmart has defaulted on a $5m payment and that Kmart had originally agreed to the closure of the service centres but later back-pedalled. (Penske is now waiving that ‘alleged debt’ under the announced agreement.)
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In a court filing this week, Penske said it had been informed by Kmart that the retailer would close as many as 700 additional Kmart stores. Kmart denied that it had contemplated closures on that scale. So far, Kmart has announced plans to close just 283 of a total of 1,200 stores as part of its bid to emerge from Chapter 11 by July next year, although retail analysts expect the figure to rise.
Under terms of the agreement, which is subject to the issuance of a signed order by the United States Bankruptcy Court for the Northern District of Illinois, Penske and Kmart will cooperate to assure an orderly wind-down of the business following Penske’s unilateral decision to close the business as of April 6, 2002.
Under the agreement, Penske has earmarked funds for certain close down expenses, including facility restoration, removal of hazardous waste and materials associated with the wind-down, and monies to support Penske Auto Center’s future customer’s warranty needs. Penske Corporation has approved funding PAC’s payment of approximately $10 million for salaries, severance, and future medical expenses of PAC employees.
Penske has also agreed to pay $6 million to Kmart under the terms of a master lease guarantee, and Penske Auto Centers, LLC also has agreed to waive a claim of $5 million that allegedly was owed as a result of Kmart’s previously announced store closing plan.
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By GlobalDataSeparately, Penske clarified that the statement contained in a document submitted by Penske to the Bankruptcy Court entitled “Consent In Lieu of Meeting Of The Management Committee Of Penske Auto Centers, LLC” and dated March 29, 2002 regarding reports of a Kmart plan to close as many as 700 additional stores. It says that this ‘was not based on any business plan, memorandum, or other documentation provided by Kmart to Penske’.
Penske states that this document was prepared by Penske and not previously shared with Kmart. Further, Kmart reiterated that it currently has no plans to close additional stores and that ‘any future store closings would be part of its overall strategy for exiting Chapter 11’.
