White Knight for Fingerhut?

A Minnesota-based business group led by turnaround specialist Peter Lytle has signed a non-binding letter of intent to buy Federated Department Stores Inc.'s troubled Fingerhut online marketing and catalog sales operation, Federated announced Thursday.

The possible sale to Business Development Group Acquisitions Inc. of Wayzata, Minn., is subject to additional investigation by BDGA and the group's ability to obtain the necessary financing, Federated said.

Last month, Cincinnati-based Federated announced plans to shut down Fingerhut and lay off its 6,000 employees in Minnesota and Tennessee if it couldn't find a buyer. Federated, whose holdings include Macy's and Bloomingdale's, acquired Fingerhut in March 1999 for $1.7 billion, aiming to boost its e-commerce efforts. But the business soured as capital dried up for Internet ventures and debt problems grew among Fingerhut's customers.

Under terms of the letter, Lytle's group must notify Federated in early March if it intends and is able to proceed with the purchase. The parties also need to negotiate a purchase agreement, Federated said.

“Although there are no guarantees of a successful outcome, we are hopeful that we will be able to conclude a transaction with BDGA,''said Ronald Tysoe, Federated's vice chairman.

Tysoe said there were no active discussions with any other parties regarding the purchase of Fingerhut, although the company remains open to other offers. Fifteen potential buyers have asked Federated for a look at Fingerhut's books.

Federated also announced Thursday that Tysoe will replace Jeffrey Sherman as head of Federated's catalog and e-commerce division, including Fingerhut. Sherman plans to step down March 1 to accept a position with Limited Stores.