NEW YORK — Mervyn’s has issued a search for a new leader, following the departure of its president, Diane Neal.

Two officials at the company said Neal’s last day was Friday, but they had no information on whether she was forced out or resigned.

A source outside the company said Herbert Mines Associates has been retained to search for a chief executive officer. Hal Reiter, ceo of Herbert Mines, could not be reached late Monday afternoon to confirm the report.

“They’re looking for a ceo to try to make the retail business work, but the investors have a safety valve in the real estate,” said a retail source. “That’s where the underlying value is.”

Last July, Target Corp. announced that it would sell Mervyn’s retail operation to a group of investors led by Sun Capital Partners Inc. and Cerberus Capital Management LP for $1.2 billion in cash. The deal was closed earlier this month. Target also sold Mervyn’s credit card receivables of $475 million to GE Consumer Finance .

The total price tag is about 10 times Mervyn’s pretax profits of $160 million. Target also named Lubert-Adler/Klaff and Partners LP as part of the “investment consortium” buying the nameplate.

Since the deal was closed earlier this month, more management changes are likely to occur.

Mervyn’s profits and market share have been shrinking amid tougher competition from other discounters, department stores and mass merchants, including Kohl’s, Wal-Mart and Federated Department Stores.

Mervyn’s is based in Hayward, Calif., and operates 257 stores in 13 states, mostly in the West and South. Mervyn’s sales for 2003 were $3.6 billion. The deal to the investment group includes Mervyn’s distribution centers.

Sun Capital has been active in the retail industry, with such prior acquisitions as Sam Goody, SunCoast, Media Play, Anchor Blue and Wickes Furniture.

Cerberus is considered a vulture fund, which has been making investments in distressed companies. Last year the firm bought Fila. Cerberus also bought or financed troubled companies such as specialty retailer G&G, textile supplier Guilford Mills and intimate apparel retailer Frederick’s of Hollywood.

This story first appeared in the September 21, 2004 issue of WWD. Subscribe Today.

The investors could recoup their investment in Mervyn’s by selling off certain locations, while still maintaining a core retail operation in a strategy similar to Kmart’s. Edward Lampert, ceo of ESL Investments, bailed Kmart out of bankruptcy and became the majority shareholder and the chairman of the company and has been selling off locations while attempting to shore up the retail stores with improved merchandise, less clutter and easier-to-shop layouts in the stores.