The feud between Troy, Mich.-based Penske Auto Centers L.L.C. and Kmart Corp. is nearly over, but the damage from the failed partnership includes the closing of 563 auto service centers owned by Penske, more than 4,000 people who need new jobs and a major setback to Kmart's effort to emerge from Chapter 11 bankruptcy.
Kmart filed for bankruptcy protection Jan. 22.
The two companies reached an agreement that allows Penske Auto Centers to close its stores.
Still, the wording of an agreement is still being written and must be approved by U.S. Bankruptcy Judge Susan Pierson Sonderby.
The agreement calls for Penske Auto Centers to do the following:
It also calls for Detroit-based Penske Corp., the parent company of Penske Auto Centers, to spend $10 million for salaries, severance and future medical expenses for 4,000 employees.
Penske Corp. Chairman and racing legend Roger Penske closed all of his auto centers April 6.
Troy-based Kmart responded immediately by obtaining a temporary restraining order from the judge ordering the stores to remain open, but they stayed closed.
Penske bought the auto centers from Kmart in 1995 for $112 million. At the time, there were 860 outlets. Penske Auto Centers was the largest independent tire service center in the nation before it closed.
Penske Corp. owns 78 percent of the company, and Kmart has retained a 22 percent ownership, according to court documents.
Kmart Chairman James Adamson said in a statement the bankrupt retailer plans to convert the space previously occupied by Penske Auto Centers into additional sales space.
"Furthermore, we are confident Penske's departure will not have any adverse affect on our business," Adamson said in a statement.
Bankruptcy attorney Judy O'Neill, a member of Detroit-based Dykema Gossett P.L.L.C., said the good news for Kmart is that the departure of Penske Auto Centers doesn't make it easier for other vendors, suppliers and licensees to bolt.
That's because the bankruptcy judge must look at contracts Kmart has with other companies individually.
More important, O'Neill said, Kmart has lost a significant business partner that could have played a significant role in its effort to create a post-bankruptcy business strategy.
Brent Snavely is a reporter for Crain's Detroit Business, a sister publication of Automotive News.