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Minneapolis, Minn. — Target Corp. announced Thursday it is selling its Mervyn's business unit and retail stores to an investment consortium for roughly $1.65 billion in cash.
Under terms of the agreement, Target will sell its Mervyn's retail subsidiary, including 257 Mervyn's stores and four distribution centers, to an investment consortium, which includes Sun Capital Partners, Inc.; Cerberus Capital Management, L.P.; and Lubert-Adler/Klaff and Partners, L.P.
In addition, Target will sell Mervyn's credit card receivables, totaling approximately $475 million, to GE Consumer Finance, a unit of General Electric Co.
Target chief financial officer Doug Scovanner says Mervyn's will continue to operate from its headquarters in Hayward, California, as an independent company. "We will work diligently to ensure a seamless transition for our guests, including continued servicing of Mervyn's credit card accounts," Scovanner says. "We're also committed to making this transition work well for our Mervyn's 27,000 team members. All non-Minnesota Mervyn's team members will be offered employment at the close of the transaction."
Mervyn's operates 257 stores in 13 states.
The transaction is subject to regulatory approval. The sale is expected to result in an estimated gain of about $270 million pretax, or approximately $0.18 per share, in the third quarter.
The sale was announced after the stock market closed Thursday. Target shares closed at $44.33, up 30 cents or 68 percent, on the New York Stock Exchange.
"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," Bob Ulrich, Target's chairman and chief executive officer, said in a statement.
In June, Target announced it was selling its 62 Marshall Field's stores to May Department Stores Co. for $3.24 billion in cash. The deal included three distribution centers, nine Mervyn's locations in Minnesota's Twin Cities, plus about $600 million owed on Marshall Field's credit cards.
Target stores began as an outlet in a Minneapolis suburb for Dayton's department stores in 1962. By 1977, Target stores were the company's biggest moneymaker, and Dayton Hudson changed its name to Target Corp. in 1999. In 2001, the company adopted Marshall Field's as the name for all of its department stores.
Growth at the company's flagship Target stores has far outpaced Mervyn's and Marshall Field's for years. In the first quarter of 2004, Mervyn's revenue and comparable-store sales both dipped 1.4 percent, with revenue of $793 million. Revenue increased 4 percent to $614 million at Marshall Field's, and comparable-store sales were up 6.1 percent. Meanwhile, revenue from Target stores increased 14 percent to $10 billion.
Target Corp. will continue to operate Target Stores, a large-store, general-merchandise, discount format, currently consisting of 1,272 stores in 47 states, as well as an online business called Target.com.
(The Associated Press contributed to this report)