I'm no expert in all the various chapters of the bankruptcy book (actually, I'm not an expert in any of the chapters), but it certainly seems odd that a company can declare bankruptcy one year and come out two years later to lead the takeover of a venerable institution. Of course, I'm talking about Kmart and its acquisition of Sears that just received shareholder approval.

Back in 2002, Kmart filed for Chapter 11 bankruptcy, which shields a company from its creditors while it reorganizes. While in bankruptcy, it is able to remain in control of its assets while a court-appointed administrator oversees the operation. The bankrupt company then must operate according to a plan it submits for approval to the court, with consent of its creditors. Kmart was not insolvent; when it entered bankruptcy protection, its assets still outvalued its debts. Rather, it was illiquid in that it didn't have enough cash on hand to pay its vendors.

Kmart used bankruptcy to rid itself of some expensive leases. It closed a ton of stores, laid off thousands of employees, and abandoned tens of thousands of former shareholders. Upon emerging from bankruptcy protection, it was undeniably a stronger company. Heck, if I could discharge my debts for pennies on the dollar and no longer be beholden to old-line share- and leaseholders, I'd be better off, too.

Kmart then began its remarkable "turnaround." It started posting profits, and its newly reminted shares began an extraordinary climb. When I began writing about the company exactly a year ago, its shares were trading for less than $40 a stub; Thursday they closed at more than $132 each. But this performance seems far less remarkable when you begin to scratch beneath the surface.

I was definitely one of the cheerleaders of the company early on who said that a company in transition should not be judged on sales growth alone. "Same-store sales aren't as important to a company in turnaround as reversing losses, increasing margins, and strengthening the balance sheet," I wrote. And while true, they do become important after awhile. Still, the company has yet to post a quarter featuring any growth whatsoever in sales. They simply keep declining.

So where are Kmart's "profits" coming from? Through the selling of its unprofitable stores. Being an old-line retailer, the company has stores located in urban areas that simply aren't available to merchants these days. This is valuable real estate, and Kmart has been selling off the land chunks at a time. This is where the problem of Kmart's bankruptcy filing arises for me. Were Kmart's assets improperly valued? Should its creditors have gotten more for the money they lent the company? Should the stockholders who invested their money in the company have been allowed to lose it all? While Chairman Eddie Lampert is the largest shareholder of both Kmart and Sears, and his vote carried a lot of sway, it seems highly improbable that a company that can't sell its merchandise and can post "profits" only by selling off its store base is able to make a $12.3 billion acquisition. Lampert has made out well on the stock's rise, but it seems that Kmart got one over on the small guy.

Beginning today, the combined company will now trade as Sears Holding Corp. (NASDAQ:SHLD) and with 3,800 stores will be the country's third largest retailer, behind Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD). Some 400 Kmart stores will be renamed Sears Essentials and will feature a host of convenience items, such as snacks, to the typical Kmart-Sears fare, making them more like a Wal-Mart or Target (NYSE:TGT) store. Shareholders will receive one share of Sears stock for each share of Kmart stock they own.

The discount retail market is still a rough-and-tumble world, and there's no guarantee current shareholders will fare any better than did those who owned Kmart shares three years ago. Those folks can line their bird cages with their stock certificates. Let's hope today's owners don't have to read another chapter in the bankruptcy court's book.

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Fool contributor Rich Duprey doesn't understand the concept of fish as pets. He owns shares in Wal-Mart but does not own any of the other stocks mentioned in the article.