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Restructuring Kmart Names New CEO

President Julian Day replaces James Adamson in taking firm out of Chapter 11.

January 20, 2003|Rachel Katz | Bloomberg News

TROY, Mich. — Kmart Corp. on Sunday named Julian Day as chief executive, replacing turnaround specialist James Adamson, as the discount retailer prepares to emerge from bankruptcy protection around April 30.

Day, 50, has served as president and chief operating officer since March, two months after the firm became the largest U.S. retailer to file for bankruptcy protection. Adamson, 54, will continue to serve as nonexecutive chairman as Kmart reorganizes, spokeswoman Lori McTavish said. Day and Adamson weren't available to comment.

Kmart is implementing a restructuring plan, including last week's announcement to close 326 stores and fire as many as 37,000 workers. Adamson, who brought Day in soon after he took over as CEO after the ouster of Charles Conaway, was expected to stay as chief executive until the company came out of bankruptcy protection, analysts said.

"It was my feeling that he certainly had planned on taking it out of bankruptcy as CEO and then remaining there for some time," said Kurt Barnard, president of Barnard's Retail Consulting Group. "It ultimately is going to create a sense of uncertainty about what's going on. The investment community and vendors do not like surprises."

Kmart on Friday said it had demanded the repayment of all executive retention loans authorized by Conaway before the discount retailer filed for bankruptcy protection, and fired the five recipients of the bonuses still with the company.

An internal investigation found that management under Conaway didn't properly disclose information to the board when it set up the loan program in 2001. The retailer lent about $30 million to more than two dozen executives in the year before the January 2002 bankruptcy filing.

Kmart sought to retain the executives as it struggled to compete with bigger rival Wal-Mart Stores Inc. before lapsing into bankruptcy protection. Adamson was a member of the board that approved the loans, some of which were later forgiven. Some creditors have called the loan agreements inappropriate.

The change wasn't related to the internal investigation of the company under Conaway, McTavish said. Troy, Mich.-based Kmart also is the subject of reviews by the U.S. attorney's office and the Securities and Exchange Commission.

Kmart won a bankruptcy judge's permission in April to hire Adamson as chief executive and to pay him as much as $7.88 million. Details of Day's and Adamson's new contracts will be filed with the U.S. Bankruptcy Court when they're completed, McTavish said.

Adamson, who has served on Kmart's board since 1996, was named chairman less than a week before the company filed for bankruptcy protection. After being named CEO, he brought in Day to serve as president, as well as several members of turnaround-management firm Jay Alix & Associates to help Kmart through its Chapter 11 proceedings.

Day left his position as chief operating officer at Sears, Roebuck & Co. in September 2000. Before that, he had served as chief financial officer of Safeway Inc. He did some consulting work before coming to Kmart, McTavish said.

"He has his arms around the business," Barnard said. "Kmart is a very troubled company. It will take a lot of doing to finally get it out of bankruptcy if that is at all possible and put it on track to re-emerge as a viable, going concern. That is not going to be easy."

Kmart's sales at stores open at least a year have fallen for 15 straight months.

Adamson joined Burger King Corp. in 1991 to help turn the restaurant chain around. Four years later, he was recruited to lead the owner of the Denny's restaurant chain, Advantica Restaurant Group Inc., through Chapter 11.

The management change was a mutual decision between the board and Adamson, McTavish said.

Kmart will operate about 1,500 stores and employ around 170,000 workers when the store closings are completed.

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