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Is There a Hostile Takeover in Kmart's Future?
By John Crudele   N.Y. Post
Why do two California investors keep buying shares of Kmart? And have the conversations between them and the retailer's management been unfriendly? Retailers' stocks aren't exactly hot right now - except for Kmart. And the reason for Kmart's success are two rich guys from the West Coast who have the means to shake things up. But do they have the desire?

The second-largest discount chain in America had sales last Christmas that were better than some, worse than others. When the final ka-ching! was sounded, Kmart's sales were up 0.7 percent.

That's a big yawner.

Yet even as similar retailers like Bradlees are disappearing, Kmart's stock has been on a tear. Down to slightly more than $5 a share the day after Christmas, the stock rose to more than $9 last week before giving back a few pennies of the gain.

Yesterday Kmart's stock closed at $29.12. Retailers hardly ever get any notice from the hot money on Wall Street.

Arbs don't shop at Kmart and they don't invest in it.

But it's different this time around, thanks to a little-noticed Securities and Exchange Commission filing by two California outfits called Abdalla-Affiliated Entitites and Burkle-Affiliated Entitites and subsequent events.

According to the SEC filing made a couple weeks ago, the groups together purchased about 6 percent of Kmart's common stock.

The purchases began quietly last September, but in October the investors got clearance to raise their stake to 15 percent. The investors didn't return telephone calls and a Kmart spokesman would only say that officials of the company have spoken with them. But she wouldn't give the nature of those talks.

The spokesman also wouldn't directly confirm that Burkle and Abdalla are still buying shares, although she hinted that they were by saying, "Their intentions are what they filed in the 13D." That's the document that says the investors intend to get their holdings up to 15 percent.

In their SEC filing the investors also say their actions are passive - as in, the two groups just believe the stock is undervalued. But that could change at any moment with a simple amendment to the filing.

And since billionaire Ronald Burkle is best known for investing in supermarkets as the chairman of food chains Fred Meyer Inc. and Dominick's Supermarket, as well as being chairman of the executive committee of Kroger Co., the fast money on Wall Street is hoping he's a corporate raider in disguise.

One arb has been monitoring the stock for weeks and he thinks Burkle and Abdalla have the dough and the background to make Kmart's management uncomfortable and investors happy.

This arb thinks there's at least another 10 percent to 20 percent to be made in this stock.

Wall Street's analysts - the guys who have to be friendly with the companies they cover - think the situation is less ripe for excitement.

Eric Beder, an analyst with Ladenburg Thalmann & Co., recently reiterated a long term "buy" on the company, believing its shares can go over $10. And he thinks Kmart's management, under Chief Executive Officer Charles C. Conaway and Chief Operating Officer Andrew Giancamilli, are its "last best hope."

What about Burkle and Abdalla? "There is some speculation that they will help Kmart with the food group," says Beder. Kmart recently terminated a contract with Supervalu Inc. to handle its food products.

If that's all there is to the investor group's interest, a lot of the hot money on Wall Street will soon retreat out of this stock.

But, no matter what the final outcome, Kmart's stock is likely to rise some more when we find out just how much more stock these two guys have accumulated.

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