Target to Sell Mervyn's for $1.65B
Minneapolis, MN, July 30—Target Corp. said it will sell its struggling Mervyn's discount department-store chain to a group of private-investment firms for about $1.65 billion.
The company agreed to sell the 257-store Mervyn's chain and four distribution centers to an investment group made up of Sun Capital Partners Inc., Cerberus Capital Management LP and Lubert-Adler/Klaff and Partners LP. In addition, Target said it will sell Mervyn's credit-card receivables of about $475 million to GE Consumer Finance, a unit General Electric.
Target said it will post a pretax gain from the sale of about $270 million, or 18 cents a share. But because Mervyn's earns a disproportionate amount of its income during the holiday season, Target expects its net income in the fourth quarter to be hurt by about four cents to five cents a share. The deal most likely will close in the third quarter, the company said.
The Mervyn's chain, which has been losing market share to rivals such as Kohl’s Corp., has watched its sales and earnings decline for the past few years. Because of its poor financial results, analysts suggested that it was unlikely another retailer would buy the business. The sale price was roughly in line with analyst predictions.
Sun Capital, based in Boca Raton, Fla., has invested in retailers such as music chain Sam Goody, Wickes Furniture and Bruegger's Bagels. Cerberus is a New York-based hedge fund. Lubert-Adler Management Inc., based in Philadelphia, makes real-estate investments in retail businesses through a joint venture with Klaff Realty LP of Chicago.
In March, Target said it hired Goldman Sachs Group Inc. to help it decide whether to sell its two department-store divisions, Mervyn's and Marshall Field's. After a fierce battle between Federated Department Stores Inc. and May Department Stores Co., Target agreed last month to sell Marshall Field's to May for $3.24 billion, substantially more than analysts had predicted. It also sold May nine Mervyn's locations in the Minneapolis-St. Paul area.
The sales enable Target to focus on its discount Target stores, which had a pretax segment profit of $3.47 billion and revenue of $41.35 billion last year, accounting for 86% of the company's total revenue.
Target said all non-Minnesota Mervyn's employees will be offered jobs when the deal closes, and those laid off after that date will be eligible to receive severance, according to the terms of the deal. After the closing, Target plans to help the investment group with the transition, it said. Mervyn's will continue to have its headquarters in Hayward, Calif.