Retailer Target Corp. said on Thursday it has reached a deal to sell its Mervyn’s department stores for $1.65 billion in cash to an investment group that includes Sun Capital Partners.
The Minneapolis-based company said the group agreed to buy the 257 Mervyn’s stores and its four distribution centers located in primarily in the west and south. Sales from these Mervyn’s stores were about $3.3 billion in fiscal 2003.
Target said it expects a pretax gain of about $270 million, or 18 cents per share in the third quarter but would see its per share profit hit by about 4 cents to 5 cents in the fourth quarter due to the loss of the Mervyn’s division.
The company also said it would sell Mervyn’s some $475 million credit card receivables to GE Consumer Finance, a unit of General Electric Co..
The proposed deal comes after Target in June agreed to sell its Marshall Field’s department store group and nine Mervyn’s store locations it planned to close in the Minneapolis area to May Department Stores Co..
Target put its Marshall Field’s chain and lower-end Mervyn’s stores -- which had been a drag on profits -- up for sale in March to get more time and money to focus on its more profitable namesake discount stores.
Target, which said the deal would likely close in the third quarter after regulatory approval, had faced Wall Street pressure to sell the stores, which have found it harder to lure shoppers who are increasingly flocking to discounters.
The retailer also said Mervyn’s would continue to operate as an independent company from its headquarters in Hayward, California near San Francisco.
The prospective buyers include: Sun Capital Partners, whose investments range from retailer Sam Goody to Bruegger’s Bagels; New York-based Cerberus Capital Management; and Lubert-Adler Management Inc., which makes real estate investment in retail through its joint venture with Klaff Realty.