Target Corp. (Minneapolis) announced a definitive agreement to sell its Hayward, Calif.-based Mervyn’s division to an investment consortium for an aggregate consideration of approximately $1.65 billion in cash.
The group is comprised of Sun Capital Partners Inc. (Boca Raton, Fla.), Cerberus Capital Management L.P. (New York) and Lubert-Adler and Klaff Partners L.P. (Philadelphia).
The 257-store middle-market department store chain generated about $3.3 billion in sales in fiscal 2003 and $3.6 billion in revenue. Its headquarters will remain in the San Francisco area.
Target, which also recently sold off its Marshall Field’s department store chain, to The May Department Store Co. (St. Louis), has now trimmed its company to the core business, the 1272-store Target discount chain (including Target Greatland and Target Superstores), which did about $41 billion in sales in 2003, or 85 percent of the company’s total.
The three investors have some experience in retail investment. Sun Capital, which has more than $1 billion of capital under its management, has had investment ownership in such retail organizations as Sam Goody, SunCoast, Media Play, Anchor Blue, Most, Wickes Furniture, Bruegger’s Bagels, Nationwide Mattress and Furniture Warehouse and the Mattress Firm. Cerberus Capital Management, which with its affiliated entities manages funds and accounts with capital in excess of $14 billion, has had investments in music retailer Wherehouse Entertainment and fashion house Esprit de Corp (now known as Esprit Holdings).
“Mervyn’s is a strong franchise given its well recognized name, loyal customer and supplier base, experienced management team and approximately 27,000 dedicated, knowledgeable team members,” said Michael Kalb, a principal with Sun Capital. “With the addition of Sun Capital’s operational experience, and the substantial financial resources of the equity investors, Mervyn’s existing management team is well equipped to strengthen the company’s market position and to take advantage of new opportunities.”
“We are excited to join Sun Capital, Cerberus and Lubert-Adler/Klaff, and believe this new partnership provides a great opportunity for our team members, vendors and guests,” said Diane Neal, who will remain president of Mervyn’s. “With the expertise and proven track record of this investment consortium, we look forward to strengthening our business and carving out a leadership position in the retail sector.”
“We believe that the sale of Mervyn’s as an ongoing business reflects our long-term commitment to create substantial value for our shareholders over time and enhances the opportunity for all of our stakeholders, including our team members, guests and communities, to enjoy continued success for many years,” said Target chairman and ceo Bob Ulrich.