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Saks selling stores to Bon-Ton for $1.1 billion

/ Source: The Associated Press

Saks Inc. said Monday it was selling its Northern department store group for $1.1 billion in cash to Bon-Ton Stores Inc., establishing Bon-Ton as a regional player in the Midwest.

York, Pa.-based Bon-Ton will add 142 former Saks department stores under the names of Carson, Pirie Scott, Bergner's, Boston Store, Younkers and Herberger's to its store portfolio, under the terms of the deal. Bon-Ton would also assume approximately $85 million of liabilities, including about $35 million in capitalized leases.

The deal is expected to be completed in the first fiscal quarter of 2006.

The Northern department store group generated revenues of $2.2 billion last year. That's close to double Bon-Ton's sales of $1.3 billion last year. Bon-Ton operates 139 department stores and two furniture stores in 16 states from the Northeast to the Midwest under the Bon-Ton and Elder-Beerman names.

"Over the last several months, we have thoroughly weighed strategic alternatives for our Northern Department Store Group," said R. Brad Martin, chairman and CEO of Saks Inc., in a statement. "We believe this transaction is in the best interests of our shareholders, our associates, and our customers."

In a separate statement, Bud Bergren, president and CEO of Bon-Ton, said that the acquisition "solidifies and strengthens our position in the Midwest and extends our footprint into the Great Plains states."

"This merger will enhance shareholder value by providing an expanded and diversified geographic presence, economies of scale that we believe will drive great profitability and a robust retail platform from which to attract and retain key vendors," he continued.

Bergren added that he expects the transaction to help boost Bon-Ton earnings immediately. He also expects to realize cost savings beginning in 2006 and by 2008 achieve expense reductions of at least $33 million from the consolidation of central functions and the integration of divisions.

Bon-Ton said that its corporate office will remain in York, Pa., where the corporate administrative and sales support functions will reside. Merchandising and marketing functions for the combined operations will operated out of the existing Northern department store group headquarters in Milwaukee, Wisc. Transition teams will be created to develop plans for the integration of the two companies into a single entity, to be completed within 18 to 24 months after the closing of the transaction.

Goldman Sachs & Co. and Citigroup Inc. were retained to advise Saks Inc. on the deal, Saks said. Lazard Ltd. advised Bon-Ton in the transaction.

The deal would complete the breakup of Birmingham, Ala.-based Saks Inc., which was created by the 1998 merger of Saks Fifth Avenue with Proffitt's Inc. The merger proved disappointing and didn't create big cost savings, as expected, resulting in disappointing earnings.

In April, Saks Inc. announced that it was selling its Proffitt's and McRae's department stores to privately held retailer Belk Inc. for $622 million in cash.

Martin said Monday when the Bon-Ton deal is completed, the company will have received more than $1.7 billion in cash from the sales of its Northern department store group and Proffitt/McRae's.

The sales leave Saks Inc. with its Saks Fifth Avenue Enterprise division, which includes Saks Fifth Avenue department stores, and Parisian department stores. Martin noted that the company is focused on "positioning" its Saks Fifth Avenue and Parisian businesses for 2006.