Kmart, Penske to meet in bankruptcy court

April 7, 2002 at 12:52 PM
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TROY, Mich., April 7 (UPI) -- Kmart Corp. and Penske Auto Centers LLC will appear in bankruptcy court on Monday, in Chicago, as the two companies decide whether service centers will continue to be operated at Kmart locations nationwide.

Richard Peters, chairman of Penske Auto Centers, said on April 1, Kmart defaulted on a $5 million payment that was contractually due as a result of the discount retailer's store closures announced in March.

"Our immediate focus is on the well being of our employees and their families as well as our customers," said Peters.

On Saturday, a bankruptcy court issued a temporary restraining order requiring Penske Auto Centers to continue operating service centers at Kmart locations.

The order was issued the same day Penske had planned to close 563 centers at Kmart locations in 44 states.

U.S. Bankruptcy Judge Susan Pierson Sonderby's order prohibits Penske from taking any action to close or liquidate the centers.

Kmart had been in discussions with Penske for several weeks about the future of the centers. Penske told the Troy, Mich., -based discount retailer of its closing plans Friday.

"Kmart regrets the precipitous action taken earlier today by Penske" the company said in a statement.

But in a statement released late Saturday, Peters said that in a meeting last month, Kmart's Chief Operating Officer Julian Day said: "Kmart had determined through their research that the auto centers provided no value to its core business."

Penske Corp., purchased the centers from Kmart in 1995. Former racecar driver and owner Roger Penske formed the company, which also has its headquarters in Troy.

"Our team is focused on assuring the orderly transition for all our constituents including customers and employees," Jim Wheat, Penske Auto Centers president and chief executive officer, said in a statement.

The statement did not include a reason the company planned to close the centers and made no mention of layoffs. It said the company would try to hire former Penske Auto Centers employees at other Penske businesses.

On Jan. 22, Kmart filed for Chapter 11 bankruptcy protection. Last month, company officials announced a reorganization plan that including closing more than 280 stores and eliminating 22,000 jobs.

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