The St. Louis-based retailer beat out Federated Department Stores by paying Target Corp. $3.24 billion in cash for the 62-store Field’s chain, plus nine Mervyn’s stores in the Twin Cities area of Minneapolis and St. Paul, three distribution centers and $600 million in credit card receivables. A definitive agreement was announced late Wednesday afternoon after the stock market closed.
Management at Target said it was buying back $3 billion of its common stock and that the program, which replaces its existing one, will take about three years to complete. Regarding Mervyn’s, Target said the review of strategic alternatives is “continuing in line with its expected timetable, and additional information regarding this review is expected to be available within 60 to 90 days.”
The Field’s buy is the kind of bold move May Co. needed to recapture its momentum, but it comes at a steep price, almost $700 million above the $2.58 billion in volume Field’s recorded in 2003. Field’s had pre-tax profits of $107 million last year.
Gene Kahn, chairman and chief executive of May Co., defended the cost of the deal, stating, “We did a lot of due diligence. It is an aggressive price, but this will reward May. We paid the right price. This is really a strategic combination that will add significant value for May shareholders. This truly makes us a more complete company. It gives us better scale and a tremendous laboratory for learning about better and more upscale merchandise. We are moving the total corporation in that direction.”
May has a conference call with analysts today, Kahn noted. “We have a great story to tell. This is an important acquisition that the Street will view favorably.”
Marshall Field’s takes May into better-priced markets, including designer, an area where it has had only limited exposure in the past. Field’s towering State Street flagship in Chicago remains one of the world’s premier department stores. Target invigorated the store last year with floor renovations, leased shops with limited distribution, unconventional adjacencies and an eclectic assortment with everything from Australian homemade ice cream to Thomas Pink shirts from England, across the 812,000 square feet of selling space. The State Street flagship is the second-largest store in America next to Macy’s Herald Square.