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May to buy Marshall Fields for $3.24 billion

May Department Stores Co. , parent of Lord & Taylor and David’s Bridal, said Wednesday it agreed to acquire Target Corp.’s Marshall Field’s department stores for about $3.24 billion in cash.
/ Source: Reuters

May Department Stores Co., parent of Lord & Taylor and David’s Bridal, said Wednesday it agreed to acquire Target Corp.’s Marshall Field’s department stores for about $3.24 billion in cash.

The deal would help May expand its distribution network, gain more leverage in negotiating with vendors and add bulk to better compete against rival Federated Department Stores Inc., analysts said.

Target Corp. put its newly revamped 62-store Marshall Field’s chain and lower-end Mervyn’s stores up for sale in March in a move to get more time and money to focus on its more profitable namesake discount stores.

Marshall Field’s offered a marquee name in markets such as Chicago, but Mervyn’s has stagnated due to competition from low-priced competitors such Kohl’s Corp., J.C. Penney Co. Inc. and Target’s own namesake chain.

May agreed to buy the real estate of nine Mervyn’s stores that Target plans to close in the Minneapolis area. Target said it would continue to evaluate its options for the rest of the Mervyn’s chain, which has a total of 266 stores in 14 states.

May edged out rival Federated, parent of Macy’s and Bloomingdale’s, to win the hand of Marshall Field’s, which had revenues of $2.6 billion last year, sources familiar with the situation said.

“I am surprised. I expected it would be Federated,” said Kurt Barnard, president of Retail Forecasting LLC. “Marshall Field’s is a good name, they have good stores and the May Co. will do justice by it.”

The chain will continue to operate under the Marshall Field’s name, and keep the exclusive products, such as Frango mints, that consumers associate with the flagship store in Chicago and other Midwestern markets.

For Federated, an acquisition of Marshall Field’s would have posed some risk of potentially cannibalizing sales at its other department stores, analysts said.

The Midwestern chain would have competed against other Federated locations at a time when shoppers continue to favor discount stores over malls, analysts said.

“They (Federated) were very careful in recognizing they didn’t want to replicate the same issue they had to deal with in the Macy’s-Bloomingdale’s merger,” Marshal Cohen, chief analyst for NPD Group.

Federated representatives could not be immediately reached for comment.

Target gets cash windfall, to buy back stock
Due to the sale, Minneapolis-based Target said it expects to record an after-tax gain in the range of $1 billion in the second or third quarter.

Target immediately set plans to return cash to shareholders, saying it would repurchase $3 billion of its common stock.

Under the terms of the deal, May also will acquire three distribution centers and about $600 million of Marshall Field’s credit card receivables.

Target said it would weigh its options for Mervyn’s over the next 90 days. It may try to sell Mervyn’s in small, regional chunks, or sell only the most attractive markets and shutter the rest of the stores and sell the real estate, said one retail investment banker who is not involved in the deals.