Kmart, the stock everyone loves to hate, has proven itself pretty rewarding for those willing to trust chairman Eddie Lampert.

The announcement of its $11 billion acquisition of Sears has given the company’s many skeptics in both the press and Wall Street pause. After emerging from bankruptcy protection in May 2003, Kmart’s stock soared more for the company’s savvy management and valuable real estate than for its ability to compete against retailing giant’s Wal-Mart and Target.

ESL Investments, Mr. Lampert’s Greenwich, Conn.-based hedge fund, owned 53 million shares of Kmart prior to the merger. The success of the Kmart investment has made him a billionaire, according to Forbes magazine, which placed his wealth at $1.7 billion in October.

Analysts estimate that based on the Kmart appreciation alone, he added another $1 billion to his fortune.

Even the remarkable run of Kmart’s stock price – it emerged from bankruptcy at $15 and closed yesterday at $109 – was written off to the company’s pristine post-bankruptcy balance sheet and tight cost controls.

The critics reckoned that Mr. Lampert’s refusal to invest in substantial capital improvements or to match Wal-Mart’s prices would drive the company right back into Chapter 11.

More recently, the doubts have taken the form of the suspicion that Mr. Lampert would use Kmart’s post bankruptcy tax credits and $3.8 billion cash position to turn the company into a mini-Berkshire Hathaway – Warren Buffett’s famous investment concern – by making investments in other companies.

The management and real estate are still there, except now the combined companies will have $55 billion in retail revenues and 3,500 stores. Even the company’s stock price, which traditionally should have dropped sharply yesterday given its role as an acquiring company, rose 7.69%. Score one for the Kmart bulls.

The most visible media skeptic, Barron’s senior editor, Andrew Bary, declined comment. Mr. Bary’s widely read July 19 cover story argued that much of Kmart’s profits have come from real estate sales, not retailing.

Another doubter, Guerilla Capital Management’s founder Peter Siris, acknowledged the difficulty of being bearish on a company that seems to consistently do things right. “I’ve been wrong short term given the events, but there are still major concerns here that are not being factored in.”

Mr. Siris, a former Wall Street retail analyst, said history is not on Kmart’s side. He said there is little precedent for a major national retailer successfully emerging from bankruptcy, citing Ames, Montgomery Ward, and Caldor’s as three recent examples. He said the big difference for Kmart would be the presence of Mr. Lampert, whom he called ” a very savvy financial strategist.”

Moreover, Kmart is trying to reposition itself as a vendor of proprietary lines by Jaclyn Smith, Martha Stewart, and Kathy Ireland and is avoiding price wars with Target and Wal-Mart on higher-volume items. The combination of the two, he said, makes for a store without a competitive identity.

“The two retailers, Sears and Kmart, are completely lost. Everything they want to do the bigger guys and the smaller guys do cheaper and better,” he said. He described the marriage of the two chains as resulting in a national convenience store with name brand home goods.

On the positive side, Mr. Siris said Kmart should easily be able to successfully cross-sell Sears’s numerous high profile brands, such as Kenmore appliances and Craftsman tools. Also, the value of the real estate underlying many Sears stores will give the company an opportunity to make a handsome profit should it decide to sell them.

One investor whose faith in Mr. Lampert has been handsomely rewarded is the Third Avenue Value Fund’s founder, Martin Whitman, whose fund owned 4.6% of Kmart prior to the merger. He told The New York Sun that he felt a lot better about the competitive position of both retailers after the merger.

“I looked pretty hard at the figures and I believe that we can save about $500 million between the two. That gives us the ability to cut costs administratively and gives us leverage with suppliers,” he said.

Mr.Whitman,80,long considered the dean of distressed investing, said the real estate values of the stores would also prove ready sources of cash as the company expands.

Wall Street’s research analysts, who have not been known for critical insights into potential corporate finance clients, panned the merger. Goldman Sachs’s George Strachan wrote to clients, “We do not believe that combining two failed retailers will make a viable challenger to Wal-Mart.”

UBS’s Gary Balter, the sole analyst publishing recommendations on the stock, said, “This is not the type of move that we were looking for to create the next leg of value for Kmart shareholders.”