NEW YORK — The race to buy Mervyn’s is in its final lap, with two investment funds — Cerberus Capital Management and Sun Capital Partners — teaming up to make the highest bid so far, estimated at between $1 billion and $1.5 billion, according to people familiar with the situation.
Cerberus and Sun are said to have a third partner in their bid, a real estate company, to spread the investment risk. The identity of the real estate firm could not be learned.
Other parties vying for Mervyn’s are believed to have bid just more than the $1 billion mark and may have decided not to up their offers.
“Cerberus is leading the race big time,” said a source in the financial community, who added that he expected an announcement of a deal by the end of this week or in early August.
Mervyn’s, a promotional department store chain based in Hayward, Calif., was put up for sale by its parent, Target Corp., last March. The chain has been losing market share and showing declining profits recently, but some market observers believe it still has a niche, particularly with Hispanic shoppers since it is concentrated in California and Texas.
Target prefers to sell Mervyn’s to a buyer that would continue to operate the chain, rather than liquidate the assets. It is not clear what Sun/Cerberus, or the other bidders, have in mind for Mervyn’s. The sale process has been handled by Goldman Sachs.
Cerberus, a New York-based private equity firm, is considered a vulture fund and lately has been active in buying distressed companies. Last year it bought Fila, the athletic brand that has been going through rough times. Before that, Cerberus bought or helped finance such troubled companies as G&G, the specialty chain that was part of the former Petrie Stores; Guilford Mills, and Frederick’s of Hollywood. Cerberus also has been seen this summer as a potential investor in Versace, which is looking to sell a minority stake, although it has never confirmed its interest.
Leonard Tessler, a Cerberus executive, said of a possible Mervyn’s bid: “I am not in a position to make a comment.” Other officials could not be reached Tuesday. Cerberus is the name of a three-headed dog in Greek mythology. The company’s fund is said to be in the billions.
“The company is very aggressive and has very talented individuals there,” said Gilbert Harrison, chairman of Financo Inc.
“Cerberus is a major venture capital fund sitting on a lot of money,” said one consultant.
Sun Capital, which likes to tackle turnaround situations, is based in Boca Raton, Fla. In the past year, it bought Musicland from Best Buy, as well as Hub Distributing, operators of the Anchor Blue and Levi’s Outlets by Most chains, from the American Retail Group, among other deals.
Schottenstein Stores Corp. and its affiliate, Retail Ventures Inc., led by Jay Schottenstein, and Vornado Realty Trust, a Paramus, N.J.-based real estate investment trust that is among the largest commercial property holders in the New York area, also have been finalists for Mervyn’s, according to sources. But the sources said the Cerberus/Sun group may have beaten the others.
Mervyn’s would be a good fit for Retail Ventures considering that RV’s other divisions — Value City Department Stores, Filene’s Basement and DSW Shoe Warehouse — all have a promotional or discount price orientation. The Schottenstein family also has a 26.8 percent stake in American Eagle Outfitters, according to a May proxy statement, and Jay Schottenstein is chairman of American Eagle.
Blackstone Group and the Apollo Group, which have been reported to be interested in Mervyn’s, were said by sources to have dropped out of the bidding.
Target sold off its Minneapolis-based Marshall Field’s chain earlier this year to May Department Stores Co. for $3.2 billion. May outbid Federated Department Stores for Field’s, but besides the fact that May was willing to pay a higher price, Target is said to have preferred May as a buyer since it intends to keep the Marshall Field’s nameplate, whereas Federated probably would have converted Field’s to its Macy’s and Bloomingdale’s divisions.
Mervyn’s and Field’s were rumored to be up for sale for some time, but it wasn’t until earlier this year that Target went public with its intentions to dispose of the businesses. Both chains have been neglected by Target Corp., which has been putting its resources into building up its successful Target division and differentiating it from the rest of the discount sectors. Other retailers, such as J.C. Penney, Kohl’s, Wal-Mart, T. J. Maxx, Marshalls and Macy’s, are seen as strong competitors to Mervyn’s.