U.S. News: Kmart And Penske Battle Over Auto Centers Future

Kmart says Penske Auto Centers has jumped the gun in announcing the closure of Penske Auto Centers and found a judge who agrees, and Penske is crying foul.
Kmart Corporation said today that the United States Bankruptcy Court for the Northern District of Illinois has issued a temporary restraining order against Penske Auto Centers, Inc., and Penske Auto Centers, LLC requiring them to continue operating auto service centers at more than 550 Kmart stores across the United States. Penske Auto Centers is owned 64% by a subsidiary of Penske Corporation and 36% by Kmart.
According to Kmart, Penske informed Kmart on April 5, 2002, that it intended to immediately shut down the operations of the auto centers as of the start of business on Saturday, April 6, 2002, spurring Kmart to initiate the court action.
Kmart says it had been in discussions with Penske for several weeks regarding a mutually acceptable plan for the future of the auto centers that would protect the interests of the centers’ customers and called the decision by Penske to close the centers "precipitous."
Richard Peters chairman of Penske Auto Centers called Kmart’s move and the news release that followed misleading.
“After reviewing the release from Kmart this afternoon, I feel obliged for the benefit of our employees and customers to provide background on some of the events surrounding (the) decision to discontinue operations.” He agreed that meetings have been held, but said they were not fruitful.
“Over the past five months, (Penske) management has conducted numerous meetings with senior Kmart officials to discuss strategies to provide support to (the auto centers) during Kmart’s restructuring and subsequent Chapter 11 bankruptcy filing. During that period, Penske Corporation provided over $40 million to support the viability of (Penske Auto Centers).”
On March 27, 2002, Peters and Penske met with Kmart’s COO, Julian Day and chief restructuring Officer, Ronald Hutchinson. Peters, commenting on the meeting, stated, “Julian Day informed us that Kmart had determined through their research that the auto centers provided no value to its core business. Kmart was therefore unwilling to provide any support to (the auto centers) and agreed that the best course of action was to close (the centers.” Peters added further, “On April 1, Kmart then defaulted on a $5 million payment that was contractually due to (the auto centers) as a result of the Kmart store closures announced in March.”