Federated Department Stores says it will lay off 3,300 Fingerhut employees - most in Minnesota - and start exploring the sale of the catalog retailer's assets. Federated says negotiations on a purchase of Fingerhut will continue with the Business Development Group of Wayzata, which has been pursuing a sale. But Federated says after five weeks, it's time to open the process to other parties interested in buying Fingerhut assets.

	Peter Lytle, left, has made an offer to purchase Fingerhut from Federated Department Stores. Lytle is considered an expert in turning around failing companies. On the right is Lytle's business partner, Marshall Masko. (MPR File Photo)

Last month Federated and Peter Lytle's Business Development Group signed a non-binding letter of intent to explore purchasing Fingerhut, which employs 4,700 people in Minnesota. The group was expected to respond in early March, but received at least one extension. But with no committed financing for the Business Development Group, Federated spokeswoman Carol Sanger says it's time to open the process to the dozen or so other parties that have expressed interest in parts of Fingerhut.

"We feel we have been very generous in providing sufficient time, and... we can't allow the process to go on indefinitiely because there are other people who have their own business interests to be concerned about and they had expressed interest in varous parts of fingerhut and we need ot begin talking to them," acording to Sanger.

Federated officials say Lytle's group is the only one interested in acquiring Fingerhut as a going concern. Federated will also terminate about 3,300 of the 3,700 employees who received 60-day layoff warning notices.

Company officials say 2,400 are in Minnesota. Spokeswoman Sanger says the company either had to act on the layoffs or extend the notices, but that didn't make sense.

"We were certainly willing to do that if it looked as though a sale were going to materialize in the near future, but as Peter Lytle himself said, in a comment in our press release, they are comfortable with us initiating employee terminations and his quote is, 'Since we would be able to rehire many of these workers if we do successfully complete the purchase,'" she said.

"It... is not fair to the Fingerhut organization to prolong the uncertainty with which they have been living. " - Ronald Tysoe, Federated vice chairman

Officials with Lytle's group could not be reached for comment. A statement they issued says they have received letters of intent and bank financing from equity investors, but both require further examination of Fingerhut's books.

Lytle says he remains optimistic a deal can still occur, and both parties continue to work closely.

Minnesota Commissioner of Economic Development Rebecca Yanisch says Federated can't continue to carry the cost of paying employees when the company is not issuing catalogs.

She says the state is seeking authority to use funds from an $8 million grant originally requested to help people laid off as a result of the September terror attacks.

"The good news is in the airline and related industries, Northwest Airlines and Sun Country airlines have been hiring back. So, the demand we projected from that industy is lower than we expected and that gives us a little extra capacity to hopefully respond at least in the short term to the Fingerhut employees," she said.

Former Fingerhut CEO Ted Deikel, with his partner retailer Tom Petters, have put in what they've characterized as a back-up bid for Fingerhut. Their spokeswoman says they expect to talk with Federated officials next week.

Fingerhut employs about 2,700 in St. Cloud. Mayor John Ellenbecker says St. Cloud is prepared to deal with the job losses.

"The task force that has been assigned the responsbility for the layoff is in place and running. They met again today. We've kept them updated on this eventuality. So I think we've got the structure in place ready to deal with this," Ellenbecker said.

Ellenbecker says he remains hopeful a deal will come through soon, based on Peter Lytle's expressions of optimism.

What happened at Fingerhut?