Target Corporation has reached definitive agreements to sell its Mervyn's business unit to an investment consortium for an aggregate consideration of approximately $1.65 billion in cash. In 2003, Mervyn's generated $3.6 billion in revenue and $160 million in pretax segment profit.
Under the terms of the agreements, Target Corporation will sell its Mervyn's retail subsidiary, including 257 Mervyn's stores and four distribution centers, to an investment consortium including Sun Capital Partners, Inc., Cerberus Capital Management, L.P., Lubert-Adler/ Klaff and Partners, L.P. Additionally, Target Corporation will sell Mervyn's credit card receivables, totaling approximately $475 million, to GE Consumer Finance, a unit of General Electric Company. Mervyn's will continue to operate from its headquarters in Hayward, California as an independent company.
The transaction is subject to regulatory approval and is expected to be completed shortly after approval is obtained. The sale is expected to result in an estimated gain in the range of $270 million pre-tax, or approximately $0.18 per share, in the third quarter.
Bob Ulrich, chairman and chief executive officer of Target Corporation, said, “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.”
Sun Capital Partners, Inc. is a private investment firm with more than $1 billion of capital under management. With this transaction, Mervyn's becomes the most recent addition to Sun Capital's extensive portfolio of retail investments which include Sam Goody, SunCoast, Media Play, Anchor Blue, Wicke's Furniture, and Bruegger's Bagels, among others.
Headquartered in New York City, Cerberus Capital Management, L.P. and its affiliated entities manage funds and accounts with capital in excess of $14 billion.
“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,” Michael Kalb, a Principal with Sun Capital said. “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.” The Company will remain headquartered in Hayward, California and operate as an independent company.
“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. 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,” said Diane Neal, who remains president of Mervyn's.
The transaction will be well capitalized with approximately $400 million of equity invested by the partners. “The equity investment made by Sun Capital, Cerberus and Lubert-Adler/Klaff will provide the Company with a strong balance sheet and plenty of liquidity to support its ongoing business plan,” said Kalb.
