Eddie's Master Stroke

Edward S. Lampert has made no secret of wanting to follow in the footsteps of his hero, Warren E. Buffett. Like the Sage of Omaha, Lampert formed a partnership at age 25 and invested in old-line companies that throw off lots of cash. And just as Buffett did with Berkshire Hathaway Inc. (BRK ), Lampert gained control of bankrupt discounter Kmart Corp. (KMRT ) last year, hinting he would turn it into a powerful investment vehicle. Then, on Nov. 17, Lampert swooped in and launched an $11 billion purchase of Sears, Roebuck & Co. (S ).

Most investors loved the deal. Kmart's stock soared 8% the day of the announcement -- instead of falling, as the stocks of an acquiring company usually do -- fetching a huge premium over the value of Kmart's business. The reason is simple: Many investors are buying Lampert, not Kmart, and they see Kmart not as a retailer trying to move product but as a springboard for lucrative deals. "This is the first move of many in the years to come with [the merged company] as [Lampert's] investment vehicle," says John C. Phelan, a former Lampert associate who is now managing partner at MSD Capital, which manages money for Dell Inc. (DELL ) founder Michael S. Dell.