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Kmart, Sears Merge; Russians Developing Missile Systems; Iran Reportedly Enriching Uranium; Missing Marine's Possessions Found in Falluja

Aired November 17, 2004 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


MILES O'BRIEN, CO-HOST: Attention Kmart and Sears shoppers, it's not a blue light special, but it is an $11 billion deal that could change the way you shop.
CAROL LIN, CO-HOST: Find in Falluja. A discovery there might help solve the missing Marine mystery. We are live at the Pentagon.

O'BRIEN: Was it poor parenting or first-degree murder? The strange case of a mom charged in the death of her diabetes daughter.

LIN: And are you ready for some "Desperate Housewives"? Well, some folks are still hot about the steamy beginning to ABC's "Monday Night Football."

From the CNN Center in Atlanta, I'm Carol Lin.

O'BRIEN: And I'm Miles O'Brien. Kyra Phillips is off today. This hour of CNN's LIVE FROM starts right now.

So, will they start spelling Craftsman with a "K." Will a blue grace the top of Sears Tower? Well, we think not. But Kmart and Sears, two somewhat faded glories of U.S. capitalism, are indeed putting all their goods in one big basket.

It's a deal worth an estimated $11 billion, or as Wal-Mart refers to that, pocket change.

CNN's Ali Velshi takes stock of it all in New York for us.

Hello, Ali.

ALI VELSHI, CNN CORRESPONDENT: Miles, good to see you again.

And you've actually put your finger on it. Wal-Mart can probably do this deal with the money that comes out of the vending machines.

Now here's the issue. They are moving to Illinois, which is Sears headquarters. And in fact, the company is going to be called Sears Holdings, but it is Kmart that's taking Sears over, not the other way around.

And our colleagues around the country actually went and got opinions from shoppers at Kmarts and Sears. And the feeling was nobody thought Kmart was in a position to be buying anyone, any company. The deal is probably worth a little better than $11 -- $11 billion at this point, because investors are loving it. I'm down here at one of only two Kmart stores in Manhattan. This is a deal whereby Kmart and Sears move into being one company, but they still remain independent stores.

Sears will remain Sears. Some Kmart stores will become Sears stores. And some Kmart stores will probably still shut down.

What they want to do is take advantage of those brands that Americans like to buy. They like Martha Stewart. There's a lot of Martha Stewart in Kmart. You can't get that at Sears right now. But at Sears you can get Lands' End. You can get Craftsman. You can get Kenmore, and you can get Diehard.

So they're looking to capitalize on that and make people stick with Kmart and Sears, bring them back o the fold after defecting to Target and Wal-Mart.

It remains to be seen whether this is a good deal for consumers. But the stock market is liking it right now -- Miles.

O'BRIEN: Ali, the big question in my mind is I think consumers are really confused right now about what Kmart's all about, what Sears is all about. They've done a good job confusing them about their brands over the years. How does this merger change any of that?

VELSHI: Right. It doesn't change it a bit. I think it gets even more confusing. Because what you have is you have the discounters.

So if you look at a chart of retailers, not all the retailers, but if you look at the discount chains, you've got Wal-Mart on the top, at about $240 billion. You've got Target next at about $47 billion. And then you've got Kmart way down there. Kmart is clearly a discounter, a discounters who's had its lunch eaten by the other two.

Sears, on the other hand, is what you call a broad line store. It's got hard lines, like appliances, like the ones we mentioned. It has soft lines like clothing, like Lands' End.

They're not making these the same company. It's unclear what the advantage is, other than the fact that they can share a head office and they can do things like that. They claim they're going to save a few hundred million bucks in the deal. Does that help the consumer? Does it mean lower prices, because Kmart's got to compete on that level with the discounters?

In the end, the discounters are the companies that are ruling the pocketbook right now. And Kmart needs to be able to compete with that.

Just so you know, Sears stores are way more profitable than Kmart stores. They want Kmart to attain that level of profitability and make it a good going concern. But there's a long way to go in this deal. Yet to be seen whether both of these struggling companies end up surviving as a result of this merger -- Miles.

O'BRIEN: All right. It's time for us to check out for now. We'll check in with you later, Ali Velshi.

VELSHI: OK.

O'BRIEN: Carol.

LIN: We've got some -- we've got some news about a different kind of product line, you might say, Miles.

The president of Russia today claimed his forces will soon be armed with nuclear missiles, unlike any in the world.

CNN Moscow bureau chief Jill Dougherty has this report.

(BEGIN VIDEOTAPE)

JILL DOUGHERTY, CNN CORRESPONDENT: President Putin made his comments. He was meeting with the top brass of the Russian military, saying that Russia is developing a new kind of nuclear missile that other countries simply do not have.

VLADIMIR PUTIN, RUSSIAN PRESIDENT (through translator): We will continue our efforts to build our armed forces as a whole and their nuclear component. We are not only conducting research and successfully testing new nuclear missile systems, I'm sure that they will be put into service within the next few years.

And what's more, there will be developments. There will be systems of the kind that other nuclear powers do not have and will not have in the near future.

DOUGHERTY: President Putin did not say what this weapon actually is, but analysts at that CNN spoke with said presumably what he's talking about is a mobile form of the TOPOL-N (ph) missile. That's a missile that the Russians already have. They now use it in silos. But this would be mobile. It would be able to be moved around the countryside.

Now President Putin did say that he still considers terrorism the key threat, one of the major threats to Russia. But in order to fight that and other threats, Russia has to keep its nuclear powers in good shape.

Now, many are questioning could this be a return to the Cold War, a type of arms race? But these experts say, no, that is not what is going on here.

They say that President Putin frequently when he meets with the top brass has made some very strong statements and that essentially this is a type of P.R., both for the rest of the world and internal Russian politics, showing that Russia still is a power, a nuclear power, even if it's not a superpower, and that it intends to remain a nuclear power.

Jill Dougherty, CNN, Moscow.

(END VIDEOTAPE)

LIN: More news about it, perhaps an emerging nuclear power.

Iran today is denying it's operating a nuclear research lab behind the U.N.'s back. An Iranian opposition group claims the undeclared site in Tehran helps the government play a shell game of sorts with U.N. nuclear regulators.

The unconfirmed and categorically denied these allegations come the very week Tehran vowed to halt its uranium enrichment program, at least temporarily.

O'BRIEN: Now over to Iraq where rebels are making their presence known.

A car bomber ran his vehicle into a group of civilians along Baghdad's dangerous airport road. One Iraqi killed. Reports say that several Americans wounded.

Things are more or less quiet in Mosul after a U.S. assault to try to restore control there. Military officials talking about the search for insurgents now.

(BEGIN VIDEO CLIP)

BRIG. GEN. CARTER HAM, U.S. ARMY: The whole nation and all the Iraqi security forces and certainly all the multinational forces are always on the lookout for indicators that Zarqawi or other leaders may be operating in their areas.

Our operations are not focused on specific individuals but rather denying the insurgents collectively the opportunity to operate freely throughout the country.

(END VIDEO CLIP)

O'BRIEN: A flash point for the search has been Falluja, of course. And now the military is expanding its investigation into a shooting at a mosque there that you know about by now. A Marine videotaped, shooting a wounded and apparently unarmed man. Authorities looking into other deaths there, as well.

LIN: All right. Now to a fascinating find in Falluja. And it could shed new light on the mystery surrounding a once missing U.S. Marine.

CNN's Barbara Starr brings us more from the Pentagon.

Barbara, why is it so difficult to actually say that this proves that Wassef Ali Hassoun, the Marine, was actually held, in fact, by insurgents, kidnapped by them?

BARBARA STARR, CNN CORRESPONDENT: Well, Carol, let's review where things stand. Falluja now giving up some clues, but perhaps no final answers about what happened to U.S. Marine Corporal Wassef Ali Hassoun. Now, you will remember that this young Marine disappeared from his camp near Falluja over the summer, was seen on this videotape, apparently held by insurgents, and then appeared in Lebanon several weeks later and was flown back to the United States.

What has happened is in Falluja now they have found a number of personal items belonging to Corporate Hassoun. In a building in Falluja, they found his uniform. The uniform he may have been wearing in this video. That uniform said to be in, quote, "remarkably good shape."

They have found his military I.D. card, other items with his name on them, we are told, including his civilian passport. So they are looking at all of this now, trying to determine what it all means.

Was Corporal Hassoun held by insurgents against his will, as he said, when he came back to the United States and spoke to the news media here as we see? Or did something else happen? Did Corporal Hassoun leave his duty post, perhaps, in some fashion of his own free will? That is what the investigation continues to be all about.

They also have not found something in Falluja yet, and that is his pistol and an amount of cash that he had with them, both those items, when he disappeared from Camp Falluja.

This all comes at a very interesting time, Carol. Because about two weeks ago, the investigator's report was done. It was sent by the JAG to the commanding general. We don't know what they decided at that point in time, whether they were going to declare him innocent of any wrongdoing, whether they were going to file charges against him.

But two weeks ago they were done. Now they have found this pile of evidence. And the investigation, we are told, now remains active and open -- Carol.

LIN: All right. Thanks very much, Barbara Starr, live at the Pentagon -- Miles.

O'BRIEN: A dramatic rescue caught on tape as a driver gets in over her head in some raging floodwaters. We'll show you the denouement, just ahead.

And more on the urge to merge and what the Kmart/Sears deal could mean for consumers.

Plus we'll answer the burning question, what was the featured item in the first blue light special nearly 40 years ago?

And on a short leash. The story behind the interspecies mingle is just a hop, skip and a jump away on LIVE FROM. Don't worry; it's a family show.

ANNOUNCER: You're watching LIVE FROM on CNN, the most trusted name in news. (COMMERCIAL BREAK)

(WEATHER REPORT)

(COMMERCIAL BREAK)

O'BRIEN: Sears and Kmart, one company? Yes, the two retail giants familiar to generations are feeling the urge to merge. Well, what does this deal mean to them. What does it mean to you?

We'll ask a branding analyst, Laura Reis, who's out with her latest book. We'll show you the cover, "The Origin of Brands" by Al and Laura Reis. Al is her dad. Kind of runs in the family, this branding thing.

Speaking of branding, the Reis family is doing pretty well on that. Good to have you back with us.

LAURA REIS, BRANDING ANALYST: Thank you very much. Thank you.

O'BRIEN: Let's put up the tote board very quickly here and talk about these two brands. It's interesting: they're of the same origin and era, end of the 19th century. Sears Roebuck founded in 1893. Now based in Hoffman Estates, Illinois. Kmart at the time, S.S. Kresge was the name of the company, founded in 1899.

We'll try to get this full screen up for you if we can. There we go. They're headquartered now in Troy, Michigan, outside of Detroit.

There you see the brands: Kenmore, Craftsman, Diehard, Lands' end, Discover card for Sears. To the right, we've got Martha Stewart, Jaclyn Smith, Joe Boxer, Route 66, Sesame Street.

So basically, what we're talking about here is Martha Stewart meets Bob Vila.

REIS: Yes.

O'BRIEN: And what does the love child look like?

REIS: Well, it's a problem. You have two classic American iconic brands. As you said, they've been around forever. Very successful, but what has happened?

Their stars are quickly fading. Sears has gotten into enormous trouble by getting into everything. I mean, they have this socks to stocks strategy, where you could -- they had Coldwell Banker for homes. They had Dean Wittier for buying stocks. And that was a disaster. The more you expand the brand, the harder it becomes, because it no longer stands for anything.

O'BRIEN: It's got to be a hard temptation -- or to resist the temptation to try to branch out.

REIS: Yes. O'BRIEN: Because you think, well, if we're good at selling Craftsmen power tools, let's bring in toasters and how about some clothing? We'll make some money on that.

What's the matter with that idea?

REIS: Well, that's what they tried to do: come to the softer side of Sears. Not only can we supply your hard goods, but we can supply your cocktail dresses as well.

And that has just never been successful. Because as a woman, I would never buy a dress at Sears. I want to go to a dress specialist. And that's where Sears got hammered. They've been beaten by the specialists in all the different categories that they tried to expand into.

O'BRIEN: All right. It's kind of disappointing, because I kind of like the Garanimals in the men's wear. But anyway, let's -- do they still make Garanimals? I don't know.

Let's talk about other companies of that vintage. You know, brands, old brands. And the truth is that an old brand, it's kind of a two-edged sword. You have this tremendous recognition, this long following, years and years of customer support.

But time -- the times they are changing. And sometimes brands can't respond. And the one that comes to mind is Kodak.

REIS: Absolutely.

O'BRIEN: That's a classic.

REIS: Kodak is such a powerful brand. Everyone around the world knows what Kodak stands for, and that's photographic film. But as you said, the times, they are a changing, and now we're going to digital photography. And how does Kodak react to digital?

Their strategy currently has been to expand the Kodak brand and now try to stand for digital. But Kodak is an old brand. It's an old technology. And they are not going to succeed, I don't believe, in the digital realm. The digital is going to belong to new players, those that have focused themselves on standing for digital.

You can't change a brand that's that strongly embedded in American -- minds of the American public into something else.

O'BRIEN: And if Kodak decides to start selling clothing and do a lube job on your car, you know they're in deep trouble, right?

REIS: Absolutely.

O'BRIEN: All right. Now, when two weaker players come together, you know, I'm not an accounting guy, quite clearly.

REIS: Me either. O'BRIEN: It just seems a little silly to me that these two potentially terminally ill patients decided before their last gasp to walk down the aisle. Now, this may not be a complete analogy, but HP and Compaq, two weakened players, came together.

REIS: Absolutely.

O'BRIEN: Was the end result, the sum total greater than the parts?

REIS: No. We've seen this happen time and time again with HP and Compaq, with Daimler and Chrysler, two somewhat struggling brands come together, hoping that the sum is greater than the parts. And it very rarely works.

These brands alone are going to have trouble succeeding, let alone now the combination of the two.

And again, they're in two different businesses. Sears is hard goods; Kmart is soft goods. Remember, Sears -- you know, Sears has a good side, and that is hard goods. They're still the leading appliance seller in America with 40 percent of the market. Refocus on that. Stand for the man's man of appliance store with all those powerful brands, and forget the soft goods.

And, you know, Kmart is just dragging them right back into the soft goods side.

O'BRIEN: They still have some competition on the Home Depot front there for the man's man shop. But...

REIS: They do. But they are -- at the moment they're the leader. And they're at risk, I think, very seriously of losing that to Home Depot and to Best Buy, which are strong, strong competitors.

O'BRIEN: Laura Reis, author of most recently, "The origin of Brands," Al and Laura Reis, her dad, the Reis brand going strong.

REIS: Yes. And extending.

O'BRIEN: Extending to greater progeny. We appreciate you stopping by. We appreciate your insights on brands. And thanks very much.

REIS: Always a pleasure. Thanks, Miles.

O'BRIEN: All this talk of Kmart had us wistful for the phrase first uttered back in 1965, "Attention Kmart shoppers. We have a blue light special."

Well, our crack research department -- that's Sonya Houston (ph) -- did a little digging through the discount bin. And she found out that the first blue light special was launched by then Kmart assistant manager Earl Bartell in Indiana. The featured item -- would you like to guess?

REIS: I was thinking, racking my brain. I don't know. It's embarrassing.

O'BRIEN: Christmas wrapping paper for 56 cents.

REIS: Wow.

O'BRIEN: There you have it.

Stay tuned, and we'll give you the news you need to know.

LIN: We've got some other news now across America, other than wrapping paper.

Some serious problems in Texas. Waters are receding now, though, around -- from areas around Austin, Texas, after last night's storm that flooded roadways and gave one woman the scare of her life. Fast currents dumped her car into a creek. Only her head was above water when a fire crew rescued her. She is unhurt.

And a new study directly links increases in air pollution from cars, power plants and industry to higher death rates in the U.S. Well, at least the cities. Researchers at the Yale School of Forestry and Environmental Studies say reducing ozone levels by 35 percent on any given day could save about 4,000 lives a year.

On Capitol Hill, the House Committee on Government Reform is holding a hearing on the flu shot shortage at this hour. CDC director Julie Gerberding is among the officials called to testify.

From sex scandals to saxophones. It is all right there at the Clinton presidential library. We're going to take you there for a preview of the grand opening later on LIVE FROM.

And America's first woman in space has a challenge for your kids. Find out what it is, later on this program.

And the Sunshine...

RHONDA SCHAFFLER, CNN CORRESPONDENT: The Sunshine State has a lot more to advertise than good weather and orange groves. I'll fill you in on why job seekers might want to take a closer look at Florida. That story's coming up, too.

(COMMERCIAL BREAK)

O'BRIEN: OK. Sears and Kmart. Kmart and Sears. We're talking about it a lot, aren't we?

LIN: Yes. The great middle class, you know? It's a merger that everybody is talking about, because nobody knows really, you know, what it means. But Rhonda Schaffler is kind of catching up with those numbers on Wall Street.

(STOCK REPORT)

(COMMERCIAL BREAK) TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


Aired November 17, 2004 - 14:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CO-HOST: Attention Kmart and Sears shoppers, it's not a blue light special, but it is an $11 billion deal that could change the way you shop.
CAROL LIN, CO-HOST: Find in Falluja. A discovery there might help solve the missing Marine mystery. We are live at the Pentagon.

O'BRIEN: Was it poor parenting or first-degree murder? The strange case of a mom charged in the death of her diabetes daughter.

LIN: And are you ready for some "Desperate Housewives"? Well, some folks are still hot about the steamy beginning to ABC's "Monday Night Football."

From the CNN Center in Atlanta, I'm Carol Lin.

O'BRIEN: And I'm Miles O'Brien. Kyra Phillips is off today. This hour of CNN's LIVE FROM starts right now.

So, will they start spelling Craftsman with a "K." Will a blue grace the top of Sears Tower? Well, we think not. But Kmart and Sears, two somewhat faded glories of U.S. capitalism, are indeed putting all their goods in one big basket.

It's a deal worth an estimated $11 billion, or as Wal-Mart refers to that, pocket change.

CNN's Ali Velshi takes stock of it all in New York for us.

Hello, Ali.

ALI VELSHI, CNN CORRESPONDENT: Miles, good to see you again.

And you've actually put your finger on it. Wal-Mart can probably do this deal with the money that comes out of the vending machines.

Now here's the issue. They are moving to Illinois, which is Sears headquarters. And in fact, the company is going to be called Sears Holdings, but it is Kmart that's taking Sears over, not the other way around.

And our colleagues around the country actually went and got opinions from shoppers at Kmarts and Sears. And the feeling was nobody thought Kmart was in a position to be buying anyone, any company. The deal is probably worth a little better than $11 -- $11 billion at this point, because investors are loving it. I'm down here at one of only two Kmart stores in Manhattan. This is a deal whereby Kmart and Sears move into being one company, but they still remain independent stores.

Sears will remain Sears. Some Kmart stores will become Sears stores. And some Kmart stores will probably still shut down.

What they want to do is take advantage of those brands that Americans like to buy. They like Martha Stewart. There's a lot of Martha Stewart in Kmart. You can't get that at Sears right now. But at Sears you can get Lands' End. You can get Craftsman. You can get Kenmore, and you can get Diehard.

So they're looking to capitalize on that and make people stick with Kmart and Sears, bring them back o the fold after defecting to Target and Wal-Mart.

It remains to be seen whether this is a good deal for consumers. But the stock market is liking it right now -- Miles.

O'BRIEN: Ali, the big question in my mind is I think consumers are really confused right now about what Kmart's all about, what Sears is all about. They've done a good job confusing them about their brands over the years. How does this merger change any of that?

VELSHI: Right. It doesn't change it a bit. I think it gets even more confusing. Because what you have is you have the discounters.

So if you look at a chart of retailers, not all the retailers, but if you look at the discount chains, you've got Wal-Mart on the top, at about $240 billion. You've got Target next at about $47 billion. And then you've got Kmart way down there. Kmart is clearly a discounter, a discounters who's had its lunch eaten by the other two.

Sears, on the other hand, is what you call a broad line store. It's got hard lines, like appliances, like the ones we mentioned. It has soft lines like clothing, like Lands' End.

They're not making these the same company. It's unclear what the advantage is, other than the fact that they can share a head office and they can do things like that. They claim they're going to save a few hundred million bucks in the deal. Does that help the consumer? Does it mean lower prices, because Kmart's got to compete on that level with the discounters?

In the end, the discounters are the companies that are ruling the pocketbook right now. And Kmart needs to be able to compete with that.

Just so you know, Sears stores are way more profitable than Kmart stores. They want Kmart to attain that level of profitability and make it a good going concern. But there's a long way to go in this deal. Yet to be seen whether both of these struggling companies end up surviving as a result of this merger -- Miles.

O'BRIEN: All right. It's time for us to check out for now. We'll check in with you later, Ali Velshi.

VELSHI: OK.

O'BRIEN: Carol.

LIN: We've got some -- we've got some news about a different kind of product line, you might say, Miles.

The president of Russia today claimed his forces will soon be armed with nuclear missiles, unlike any in the world.

CNN Moscow bureau chief Jill Dougherty has this report.

(BEGIN VIDEOTAPE)

JILL DOUGHERTY, CNN CORRESPONDENT: President Putin made his comments. He was meeting with the top brass of the Russian military, saying that Russia is developing a new kind of nuclear missile that other countries simply do not have.

VLADIMIR PUTIN, RUSSIAN PRESIDENT (through translator): We will continue our efforts to build our armed forces as a whole and their nuclear component. We are not only conducting research and successfully testing new nuclear missile systems, I'm sure that they will be put into service within the next few years.

And what's more, there will be developments. There will be systems of the kind that other nuclear powers do not have and will not have in the near future.

DOUGHERTY: President Putin did not say what this weapon actually is, but analysts at that CNN spoke with said presumably what he's talking about is a mobile form of the TOPOL-N (ph) missile. That's a missile that the Russians already have. They now use it in silos. But this would be mobile. It would be able to be moved around the countryside.

Now President Putin did say that he still considers terrorism the key threat, one of the major threats to Russia. But in order to fight that and other threats, Russia has to keep its nuclear powers in good shape.

Now, many are questioning could this be a return to the Cold War, a type of arms race? But these experts say, no, that is not what is going on here.

They say that President Putin frequently when he meets with the top brass has made some very strong statements and that essentially this is a type of P.R., both for the rest of the world and internal Russian politics, showing that Russia still is a power, a nuclear power, even if it's not a superpower, and that it intends to remain a nuclear power.

Jill Dougherty, CNN, Moscow.

(END VIDEOTAPE)

LIN: More news about it, perhaps an emerging nuclear power.

Iran today is denying it's operating a nuclear research lab behind the U.N.'s back. An Iranian opposition group claims the undeclared site in Tehran helps the government play a shell game of sorts with U.N. nuclear regulators.

The unconfirmed and categorically denied these allegations come the very week Tehran vowed to halt its uranium enrichment program, at least temporarily.

O'BRIEN: Now over to Iraq where rebels are making their presence known.

A car bomber ran his vehicle into a group of civilians along Baghdad's dangerous airport road. One Iraqi killed. Reports say that several Americans wounded.

Things are more or less quiet in Mosul after a U.S. assault to try to restore control there. Military officials talking about the search for insurgents now.

(BEGIN VIDEO CLIP)

BRIG. GEN. CARTER HAM, U.S. ARMY: The whole nation and all the Iraqi security forces and certainly all the multinational forces are always on the lookout for indicators that Zarqawi or other leaders may be operating in their areas.

Our operations are not focused on specific individuals but rather denying the insurgents collectively the opportunity to operate freely throughout the country.

(END VIDEO CLIP)

O'BRIEN: A flash point for the search has been Falluja, of course. And now the military is expanding its investigation into a shooting at a mosque there that you know about by now. A Marine videotaped, shooting a wounded and apparently unarmed man. Authorities looking into other deaths there, as well.

LIN: All right. Now to a fascinating find in Falluja. And it could shed new light on the mystery surrounding a once missing U.S. Marine.

CNN's Barbara Starr brings us more from the Pentagon.

Barbara, why is it so difficult to actually say that this proves that Wassef Ali Hassoun, the Marine, was actually held, in fact, by insurgents, kidnapped by them?

BARBARA STARR, CNN CORRESPONDENT: Well, Carol, let's review where things stand. Falluja now giving up some clues, but perhaps no final answers about what happened to U.S. Marine Corporal Wassef Ali Hassoun. Now, you will remember that this young Marine disappeared from his camp near Falluja over the summer, was seen on this videotape, apparently held by insurgents, and then appeared in Lebanon several weeks later and was flown back to the United States.

What has happened is in Falluja now they have found a number of personal items belonging to Corporate Hassoun. In a building in Falluja, they found his uniform. The uniform he may have been wearing in this video. That uniform said to be in, quote, "remarkably good shape."

They have found his military I.D. card, other items with his name on them, we are told, including his civilian passport. So they are looking at all of this now, trying to determine what it all means.

Was Corporal Hassoun held by insurgents against his will, as he said, when he came back to the United States and spoke to the news media here as we see? Or did something else happen? Did Corporal Hassoun leave his duty post, perhaps, in some fashion of his own free will? That is what the investigation continues to be all about.

They also have not found something in Falluja yet, and that is his pistol and an amount of cash that he had with them, both those items, when he disappeared from Camp Falluja.

This all comes at a very interesting time, Carol. Because about two weeks ago, the investigator's report was done. It was sent by the JAG to the commanding general. We don't know what they decided at that point in time, whether they were going to declare him innocent of any wrongdoing, whether they were going to file charges against him.

But two weeks ago they were done. Now they have found this pile of evidence. And the investigation, we are told, now remains active and open -- Carol.

LIN: All right. Thanks very much, Barbara Starr, live at the Pentagon -- Miles.

O'BRIEN: A dramatic rescue caught on tape as a driver gets in over her head in some raging floodwaters. We'll show you the denouement, just ahead.

And more on the urge to merge and what the Kmart/Sears deal could mean for consumers.

Plus we'll answer the burning question, what was the featured item in the first blue light special nearly 40 years ago?

And on a short leash. The story behind the interspecies mingle is just a hop, skip and a jump away on LIVE FROM. Don't worry; it's a family show.

ANNOUNCER: You're watching LIVE FROM on CNN, the most trusted name in news. (COMMERCIAL BREAK)

(WEATHER REPORT)

(COMMERCIAL BREAK)

O'BRIEN: Sears and Kmart, one company? Yes, the two retail giants familiar to generations are feeling the urge to merge. Well, what does this deal mean to them. What does it mean to you?

We'll ask a branding analyst, Laura Reis, who's out with her latest book. We'll show you the cover, "The Origin of Brands" by Al and Laura Reis. Al is her dad. Kind of runs in the family, this branding thing.

Speaking of branding, the Reis family is doing pretty well on that. Good to have you back with us.

LAURA REIS, BRANDING ANALYST: Thank you very much. Thank you.

O'BRIEN: Let's put up the tote board very quickly here and talk about these two brands. It's interesting: they're of the same origin and era, end of the 19th century. Sears Roebuck founded in 1893. Now based in Hoffman Estates, Illinois. Kmart at the time, S.S. Kresge was the name of the company, founded in 1899.

We'll try to get this full screen up for you if we can. There we go. They're headquartered now in Troy, Michigan, outside of Detroit.

There you see the brands: Kenmore, Craftsman, Diehard, Lands' end, Discover card for Sears. To the right, we've got Martha Stewart, Jaclyn Smith, Joe Boxer, Route 66, Sesame Street.

So basically, what we're talking about here is Martha Stewart meets Bob Vila.

REIS: Yes.

O'BRIEN: And what does the love child look like?

REIS: Well, it's a problem. You have two classic American iconic brands. As you said, they've been around forever. Very successful, but what has happened?

Their stars are quickly fading. Sears has gotten into enormous trouble by getting into everything. I mean, they have this socks to stocks strategy, where you could -- they had Coldwell Banker for homes. They had Dean Wittier for buying stocks. And that was a disaster. The more you expand the brand, the harder it becomes, because it no longer stands for anything.

O'BRIEN: It's got to be a hard temptation -- or to resist the temptation to try to branch out.

REIS: Yes. O'BRIEN: Because you think, well, if we're good at selling Craftsmen power tools, let's bring in toasters and how about some clothing? We'll make some money on that.

What's the matter with that idea?

REIS: Well, that's what they tried to do: come to the softer side of Sears. Not only can we supply your hard goods, but we can supply your cocktail dresses as well.

And that has just never been successful. Because as a woman, I would never buy a dress at Sears. I want to go to a dress specialist. And that's where Sears got hammered. They've been beaten by the specialists in all the different categories that they tried to expand into.

O'BRIEN: All right. It's kind of disappointing, because I kind of like the Garanimals in the men's wear. But anyway, let's -- do they still make Garanimals? I don't know.

Let's talk about other companies of that vintage. You know, brands, old brands. And the truth is that an old brand, it's kind of a two-edged sword. You have this tremendous recognition, this long following, years and years of customer support.

But time -- the times they are changing. And sometimes brands can't respond. And the one that comes to mind is Kodak.

REIS: Absolutely.

O'BRIEN: That's a classic.

REIS: Kodak is such a powerful brand. Everyone around the world knows what Kodak stands for, and that's photographic film. But as you said, the times, they are a changing, and now we're going to digital photography. And how does Kodak react to digital?

Their strategy currently has been to expand the Kodak brand and now try to stand for digital. But Kodak is an old brand. It's an old technology. And they are not going to succeed, I don't believe, in the digital realm. The digital is going to belong to new players, those that have focused themselves on standing for digital.

You can't change a brand that's that strongly embedded in American -- minds of the American public into something else.

O'BRIEN: And if Kodak decides to start selling clothing and do a lube job on your car, you know they're in deep trouble, right?

REIS: Absolutely.

O'BRIEN: All right. Now, when two weaker players come together, you know, I'm not an accounting guy, quite clearly.

REIS: Me either. O'BRIEN: It just seems a little silly to me that these two potentially terminally ill patients decided before their last gasp to walk down the aisle. Now, this may not be a complete analogy, but HP and Compaq, two weakened players, came together.

REIS: Absolutely.

O'BRIEN: Was the end result, the sum total greater than the parts?

REIS: No. We've seen this happen time and time again with HP and Compaq, with Daimler and Chrysler, two somewhat struggling brands come together, hoping that the sum is greater than the parts. And it very rarely works.

These brands alone are going to have trouble succeeding, let alone now the combination of the two.

And again, they're in two different businesses. Sears is hard goods; Kmart is soft goods. Remember, Sears -- you know, Sears has a good side, and that is hard goods. They're still the leading appliance seller in America with 40 percent of the market. Refocus on that. Stand for the man's man of appliance store with all those powerful brands, and forget the soft goods.

And, you know, Kmart is just dragging them right back into the soft goods side.

O'BRIEN: They still have some competition on the Home Depot front there for the man's man shop. But...

REIS: They do. But they are -- at the moment they're the leader. And they're at risk, I think, very seriously of losing that to Home Depot and to Best Buy, which are strong, strong competitors.

O'BRIEN: Laura Reis, author of most recently, "The origin of Brands," Al and Laura Reis, her dad, the Reis brand going strong.

REIS: Yes. And extending.

O'BRIEN: Extending to greater progeny. We appreciate you stopping by. We appreciate your insights on brands. And thanks very much.

REIS: Always a pleasure. Thanks, Miles.

O'BRIEN: All this talk of Kmart had us wistful for the phrase first uttered back in 1965, "Attention Kmart shoppers. We have a blue light special."

Well, our crack research department -- that's Sonya Houston (ph) -- did a little digging through the discount bin. And she found out that the first blue light special was launched by then Kmart assistant manager Earl Bartell in Indiana. The featured item -- would you like to guess?

REIS: I was thinking, racking my brain. I don't know. It's embarrassing.

O'BRIEN: Christmas wrapping paper for 56 cents.

REIS: Wow.

O'BRIEN: There you have it.

Stay tuned, and we'll give you the news you need to know.

LIN: We've got some other news now across America, other than wrapping paper.

Some serious problems in Texas. Waters are receding now, though, around -- from areas around Austin, Texas, after last night's storm that flooded roadways and gave one woman the scare of her life. Fast currents dumped her car into a creek. Only her head was above water when a fire crew rescued her. She is unhurt.

And a new study directly links increases in air pollution from cars, power plants and industry to higher death rates in the U.S. Well, at least the cities. Researchers at the Yale School of Forestry and Environmental Studies say reducing ozone levels by 35 percent on any given day could save about 4,000 lives a year.

On Capitol Hill, the House Committee on Government Reform is holding a hearing on the flu shot shortage at this hour. CDC director Julie Gerberding is among the officials called to testify.

From sex scandals to saxophones. It is all right there at the Clinton presidential library. We're going to take you there for a preview of the grand opening later on LIVE FROM.

And America's first woman in space has a challenge for your kids. Find out what it is, later on this program.

And the Sunshine...

RHONDA SCHAFFLER, CNN CORRESPONDENT: The Sunshine State has a lot more to advertise than good weather and orange groves. I'll fill you in on why job seekers might want to take a closer look at Florida. That story's coming up, too.

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O'BRIEN: OK. Sears and Kmart. Kmart and Sears. We're talking about it a lot, aren't we?

LIN: Yes. The great middle class, you know? It's a merger that everybody is talking about, because nobody knows really, you know, what it means. But Rhonda Schaffler is kind of catching up with those numbers on Wall Street.

(STOCK REPORT)

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