Edward Lampert began studying the shareholder letters published by billionaire investor Warren Buffett while working at Goldman, Sachs & Co.’s risk arbitrage department during the 1980s.

Mr. Buffett’s practice of buying assets shunned by most other investors may have served as a model for Wednesday’s announcement by Mr. Lampert’s Kmart Holdings Corp. that it will purchase Sears, Roebuck & Co. for $11 billion.

“Eddie is very skilled at asset redeployment,” said Martin Whitman, 80, chairman of Third Avenue Management in New York, which owns about 5% of Kmart and is the second-largest shareholder after Mr. Lampert. “As stand-alones, Kmart and Sears haven’t been all that successful.”

Mr. Lampert, who owns a 15% stake in Sears through his ESL Investments Inc., is combining his two biggest holdings to squeeze out as much as $500 million in savings from the retail chains and make the company a viable contender to Wal-Mart Stores Inc. If successful, the renamed Sears Holdings Corp. may also serve as a vehicle similar to Mr. Buffett’s Berkshire Hathaway Inc. to make more acquisitions, investors including Mr. Whitman said.

Shares of Kmart had surged more than sevenfold since the Troy, Mich.-based discounter exited bankruptcy in May 2003.

ESL Investments acquired more than 50% of the retailer by snapping up the company’s debt. The stock lost $5.29 to $103.71 in Nasdaq Stock Market composite trading. Shares of Sears rose 81 cents to $53.80.

Mr.Lampert, 42, was quick to capitalize on the underlying value of the real estate of Kmart’s stores, arranging for the sale of unprofitable locations to Home Depot Inc. and Sears.

Sears’s chief executive, Alan Lacy, who will run the combined company, and Mr. Lampert began to consider merging the 118-year-old retailer with Kmart earlier this year when discussing the store purchases, 51-year-old Mr. Lacy said in a telephone interview.

Sears’s sales at existing stores have dropped for 13 of the last 15 quarters, as the Hoffman Estates, Ill.-based company has struggled to sell everything from hand tools to clothing at its department stores. Lacy wanted to open so-called big-box stores named Sears Grand to compete better with retailers such as Best Buy Co. and Kohl’s Corp.

“The implications of Sears Grand off-mall stores were very significant,” Mr. Lampert said in a telephone interview. “It made us realize that something bigger could be done.”

Converting several hundred Kmart locations to Sears stores will boost sales among shoppers who bypass the discounter for Wal-Mart and Target Corporation, Mr. Lampert said on a conference call with investors and analysts.

The merger will create savings of at least $500 million by eliminating redundancies in the purchase of $40 billion in merchandise a year and a combined $12 billion in selling and administrative expenses, Mr. Lampert said.

Sears stores are far more productive than Kmart, meaning conversions of Kmart outlets could have a “high return on investment,” he said. Sears’s stores generate about $300 a square foot in revenue, or about $80 a square foot more than Kmart. “That is an $8 billion opportunity,” he said.

Wal-Mart, the world’s largest retailer, has five times the revenue of the combined company’s $55 billion in sales, and its sales at existing stores have jumped an average of 6% a year the past decade. Competition with Wal- Mart’s lower prices drove Kmart into bankruptcy in 2002.

“Kmart was a wreck,” said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting firm. “Sears is the worst-performer operator in the department store sector. Wal-Mart is just going to chew them up off the malls.”

The transaction isn’t the first time Mr. Lampert has gone against the consensus opinion and made a big bet in one industry. Greenwich, Conn.-based ESL, founded by Mr. Lampert in 1988, also held shares in AutoZone Inc., the largest American auto-parts retailer, and AutoNation Inc., the biggest American retailer of new and used cars.

Mr. Lampert, who got his first taste of Wall Street as a summer intern in the sales and training program at Goldman, has focused on buying companies that are undervalued.

“He was always a very focused individual,” said Earl Graves Jr., chief operating officer of Earl G. Graves Publishing, who attended Yale University with Mr. Lampert. “He knows what he wanted to do.”

In an interview last year, Mr. Lampert said he was drawn to Mr. Buffett’s investment philosophy because of the similarities to merger arbitrage. He decided to follow Mr. Buffett’s advice and invest in companies trading at a big discount to the present value of their future cash flow.

“It really trains you to make decisions and to understand risk and reward,” Mr. Lampert said.

That training was put to the test in January 2003, when Mr. Lampert was near completion of a transaction to bring Kmart out of bankruptcy. He was kidnapped for 30 hours before persuading two men to let him go with a promise to pay ransom.

“I think to measure Eddie you only have to look at when he got kidnapped and talked the kidnappers into letting him go,” said Mr. Whitman. “That’s Eddie. He’s very skillful, very smart, very personable.”