Sears achieved higher sales in its stores compared with Kmart, calling this a reason to switch hundreds of Kmarts to the Sears name.  "If we ever achieve that level of productivity in Kmart stores, whether as Kmarts or as Sears, you're talking about an $8 billion opportunity," Mr. Lampert said.  Others saw the deal as having far less to do with what is sold in the stores than with the ground beneath them. "This appears to be a heavily real estate-oriented deal, not a merchandise-oriented one," said Eugene Fram, a marketing professor at the Rochester Institute of Technology. "You really need star power in this case. Both of these companies are faltering, and if you take a look at the size of the new company, it's still only 20 percent of Wal-Mart in terms of sales."  The sale of Sears also appears to spell opportunity for Martha Stewart's company, Martha Stewart Living Omnimedia, which sells a line of products exclusively through Kmart in the United States. In a statement, its new chief executive, Susan Lyne, said the merger "will create for us a broader retail presence that reaches millions of new consumers." Its stock rose $1.09, to $18.49.  Mr. Lampert, an often maverick investor from Greenwich, Conn., bought up chunks of Kmart debt while it was operating under bankruptcy protection two years ago. With an investment estimated at $700 million to $1 billion, he won control of the emerging company, and pushed it to close stores and make other strategic changes during and after its reorganization.  All the while, he has remained a large stakeholder in Sears, which has been struggling to reinvent itself while larger and more nimble chains, including Wal-Mart, Target, Home Depot and Lowe's, spirited away once-loyal Sears customers with better merchandise, better prices or both.  Sears began in 1886 as a watch dealer, progressed to mail-order merchant and by 1925 opened its first stores, becoming the nation's dominant retailer before World War II.  But by the 1970's its retail fortunes were in decline, and with the hope of diversifying, it adopted a "socks and stocks" strategy, entering the financial services business in 1981 with its purchases of Dean Witter and Coldwell Banker. Twelve years later, it sold or spun them both off, along with a mortgage division.  Sears sought more buyers for its refrigerators, stoves and other appliances with the help of its credit division, which was started at the depths of the Depression. But after higher-than-expected defaults by cardholders in recent years hurt earnings, it sold the unit to Citigroup last year.  Sears is seeking to attract a fresh clientele to its stores by designing new formats and adding to its selling floors brands like Lands' End, the mail-order clothing company it bought in 2002 for $1.9 billion.  It is not clear whether Mr. Lampert lost patience with Mr. Lacy's efforts to turn around Sears and decided to force a strategy of his own on the company. But it is clear that as Sears ploddingly created its freestanding "Sears Grand" prototype stores, opening the first outside Salt Lake City a year ago and since adding three more, competitors like Wal-Mart, Target and Lowe's were opening stores far faster. Wal-Mart held 300 ribbon cuttings last year and has announced plans for as many as 500 in the coming year.  Kmart and its predecessors also have a long history, starting in 1899 as the five-and-dime S.S. Kresge. It took an early lead in discount retailing after it opened the first Kmart stores in 1962. But by the 1980's, the renamed Kmart had lost ground to Wal-Mart, which emerged from small-town roots to consistently offer lower prices, more products in stock and a more efficient supply network.  Kmart fell from its perch as the biggest discounter and became better known for corporate bumbling than for anything it sold; by the 1990s, customers who found its ad circulars in their Sunday papers often expected not to find the featured items in the stores.  In autumn 2001, Kmart's chief executive embarked on a plan to sell thousands of products at prices that undercut Wal-Mart's. The strategy was widely seen as worsening Kmart's financial woes, and by January 2002, it had filed for bankruptcy protection, the biggest retail bankruptcy in American history.  Combined, the two companies are expected to save money on back-office operations and purchasing, experts said. Executives forecast $200 million in savings from cross-selling merchandise and converting some Kmarts to Sears stores, along with $300 million in savings from tighter purchasing and a streamlined supply chain. But to survive as retailers over the long haul, they will need to find a successful sales formula.  Peter J. Solomon, an investment banker who advised Lands' End during its sale to Sears and owns a minority stake in Mr. Lampert's company, ESL Partners, said: "If you eliminate $500 million of overhead, you can create very valuable earnings and cash flow without ever changing the merchandising. I would say that Eddie has done that to a great extent at Kmart."
Kmart to buy Sears, Roebuck for $11 billion in cash and stock to form nation's third-largest retailer; companies plan to maintain largely separate identities, at least at first, although hundreds of free-standing Kmarts will eventually become Sears stores and stores will carry each others products; deal is triumph for Edward S Lampert, Kmart's largest shareholder, who will be chairman of merged company, to be called Sears Holdings; Kmart chief executive Aylwin B Lewis will run both retailers; Sears chief executive Alan J Lacy, who will be vice chairman, comments; analysts discuss outlook for company; shares of both companies soar; financial graphs; photos (M)