$166M Settlement in Mervyn’s Suit Against Target, Others

Unpaid creditors of Mervyn’s reportedly sued more than 30 entities connected with its 2004 sale, including Target Corporation; they accused the entities of stripping out the now-defunct retailer’s valuable real estate assets to fund the purchase.

A bankruptcy judge reportedly signed off on a settlement under which Target Corporation, private equity firm Cerberus Capital Management, and about 40 other investors will pay $166 million to the creditors of bankrupt Mervyn’s, a former Target clothing subsidiary that operated a chain of department stores—including one at Southdale Mall in Edina.
According to a Star Tribune report, Hayward, California-based Mervyn’s went into bankruptcy in 2008, almost four years after Minneapolis-based Target sold it to Cerberus Capital Management and other investors for $1.25 billion.
The investor group structured the buyout as two separate purchases—one for Mervyn’s retail operations and another for the chain’s real estate holdings, according to a New York Times report.
Unpaid creditors later sued more than 30 entities connected with the sale of Mervyn’s, including Target and Cerberus, the Star Tribune reported. They accused the entities of stripping out the retailer’s valuable real estate assets to fund the purchase.
After Target was paid and investors profited from the 2004 sale, Mervyn’s retailing operation was on the hook to pay for the transaction, the lawsuit reportedly alleged. Mervyn’s—which was left with $22 million in working capital and $800 million in debt—had to make overpriced lease payments on stores that it previously owned, and the payments were more than it could handle, the Star Tribune reported.

According to The New York Times, creditors alleged that the deal left Mervyn's a “shrunken” and insolvent company. The Mervyn’s liquidation resulted in the closure of 175 stores and the loss of thousands of jobs, the national media outlet reported.
Target is Minnesota’s second-largest public company based on revenue, which totaled $68.5 billion in its fiscal year that ended in January.
New York-based Cerberus Capital Management, meanwhile, has made local headlines recently because it is reportedly preparing a takeover bid for struggling Eden Prairie-based supermarket chain Supervalu, Inc.