Kmart, Penske reach compromise on shutdown of 550 auto service centers

Wednesday, April 10th 2002, 12:00 am
By: News On 6

CHICAGO (AP) _ Kmart reached an agreement with business partner Penske Tuesday on how best to shut down the company's auto service centers at more than 550 Kmart locations.

Penske closed its auto centers over the weekend despite efforts by Kmart, including a temporary restraining order issued Saturday by U.S. Bankruptcy Judge Susan Pierson Sonderby that attorneys said came too late.

The closing left 4,000 Penske employees out of work. Kmart attorneys claimed the unilateral action would hurt the image of their company as it tries to dig itself out of bankruptcy.

Kmart, which had $37 billion in sales in 2000, filed for reorganization under Chapter 11 in January, citing disappointing holiday sales, a scarcity of available cash and plummeting share prices.

After presenting the agreement to Sonderby on Tuesday night, representatives of Kmart and Penske issued a joint statement outlining the terms of the agreement.

Penske earmarked funds for closing expenses, including facility restoration, removal of hazardous waste and materials associated with the winding down and money to support the future warranty needs of Penske Auto Centers customers.

Penske Corp., which operated the auto centers through two subsidiaries, approved spending $10 million for salaries, severance and future medical expenses of center employees, the statement said.

Penske also agreed to waive a $5 million claim arising from Kmart's previously announced plan to close 283 of its 2,114 stores across the nation as part of its effort to restore its profitability.

The two companies will present the agreement to committees of Kmart's bankers and creditors and be back in court on Friday to report to the judge on their progress.