Vornado is also involved in its own transaction, having agreed last week to acquire Toys 'R' Us in an $8.6 billion deal with Bain Capital and Kohlberg, Kravis, Roberts & Co. A Bear Stearns report issued yesterday on that deal says, "The challenge, of course, will be to fix an ailing retailer in a competitive environment, while at the same time realizing the underlying value of [Toys 'R' Us] real estate. The assets are generally acknowledged to be pretty good, and the exercise should play to [Vornado's] strengths."

Earlier this month, Kmart officials announced in their annual report that about 400 Kmarts will be converted into Sears stores. This expansion will better place Sears in a position to compete with Wsal-Mart, Target, Kohl's and others, the report says.

Shareholders are expected vote on the measure Thursday. The combined companies would form the third-largest US retailer behind Wal-Mart and Home Depot. Kmart currently operates 1,480 stores in North America, and Sears has about 2,400 units. Kmart's report acknowledges that the merger will result in store closings, but is not specific as to how many.