TALK OF KOHLBERG KRAVIS BID SUPERHEATS KMART’S STOCK

NEW YORK — Kmart Corp. stock went wild Tuesday, soaring 16.9 percent in the Big Board’s heaviest trading, on rumors that Kohlberg Kravis Roberts & Co. was interested in buying the discount chain.
Spokesmen for both KKR and Kmart declined comment on the reports as a matter of policy. “We don’t know where the rumor is coming from, and we don’t encourage anyone to spend too much time on it,” a Kmart spokeswoman said.
Kmart shot to the top of the New York Stock Exchange most-active list as 14.8 million shares changed hands and the stock ran up 1 5/8 to 11 1/4. Average daily volume is 2.3 million shares.
Cash-rich KKR appears to be on the prowl. Last last week, it made an unofficial bid for Duty Free Shops. Mot Hennessy Louis Vuitton (LVMH), which itself is in takeover talks with DFS, said its bid for Duty Free is a virtual fait accompli.
KKR recently raised about $5 billion for a new buyout fund. The firm also has made noise with the sale of some high-profile companies this year, including Duracell International and American Re Corp.
Sources at two New York investment firms noted, however, that when KKR has pursued retail investments, it has generally been in supermarket chains such as Stop & Shop, Fred Meyer, Safeway and Bruno’s.
“I’ve never seen them go for a general merchandise retailer,” said a source. “Duty Free isn’t quite the same thing. It seems unlikely, but you never say ‘never.’ “
Another source questioned whether KKR, even with all its cash, would fork over the funds to buy a business as big as Kmart.
“With about 600 million Kmart shares outstanding, if KKR offered $15 a share, it would cost them almost $1 billion. Do they want to pay that much for a company that was on the verge of bankruptcy just a year ago?” the source said.
Kmart also declined comment when it was contacted by the NYSE, which requested that the 2,020-unit chain issue a public statement indicating whether there are any corporate developments that might explain the unusual activity.
The stock’s activity came amid a strong market. The Dow Jones Industrials surged 50.69 points Tuesday to a record 6397.60.
Many of Kmart’s top executives were unavailable for comment Tuesday because they were en route to New York for the opening of the chain’s second store in Manhattan and a meeting with analysts to discuss third-quarter results. That meeting is set for this morning.
First Call’s consensus estimate is that Kmart will notch a break-even third quarter, versus a year-ago loss of 26 cents a share. Traders speculated on Tuesday that Kmart shares could also be riding enthusiasm for a strong earnings report tomorrow.
A soft opening of the new Manhattan unit, at 770 Broadway between Eighth and Ninth Streets in Greenwich Village, is slated for today at 1:30 p.m., with the grand opening to follow tomorrow.

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