May Department Stores Will Shed Its Discount Chains

ST. LOUIS — May Department Stores Co. said Wednesday that it will leave the discount store business with the sale of its Caldor chain to managers for $500 million and a spinoff of its Venture chain, allowing it to focus on department and specialty stores.

The operator of 14 department store chains, including such stores as Hecht’s, Lord & Taylor, Famous Barr and Filene’s, is the largest publicly traded department store chain.

In another move, May said it would distribute to shareholders the stock of its Venture division in a tax-free spinoff subject to a favorable Internal Revenue Service ruling. The top management of Venture will continue with the store chain after the spinoff, May said.

May had announced last June that it planned to sell its discount stores. It said it would use proceeds of the sale for expansion of its department and specialty store chains and other general purposes.

“The reason we are getting out of discount stores is so that we can concentrate on our higher return and faster growing businesses,” a spokesman for May said, citing specialty stores that sell shoes, and department stores.

The discount store business has been intensely competitive, especially with retailing giant Sears, Roebuck & Co. adopting a discount store strategy over the past year.

May’s decision to focus on department stores comes at a time when its major competitors are struggling.

The biggest department store operator, Campeau Corp., owner of Bloomingdale’s and other chains, was on the verge of financial collapse last month until it was rescued by Canadian developer Olympia & York Ltd.

Analysts say May’s strong balance sheet will make it a more able competitor in an industry increasingly dominated by highly leveraged stores and put it in a good position to buy some of the properties put on the market in distress sales.

May said it would take a slight loss on the sale of Caldor, which it acquired as part of the Associated Dry Goods buyout in 1986. That deal also included Lord & Taylor and a number of other department store properties.

Caldor, one of the first major discount store chains, had sales of $1.57 billion and an operating profit of $50 million last year. It runs 118 stores, mostly in the Northeast.

Venture, with 75 stores in eight Midwestern states, had sales of $1.28 billion and an operating profit of $81 million.

The department stores had sales of $7.5 billion and profit of $802 million and the shoe stores had sales of $1.1 billion and profit of $138 million.

Under terms of the Caldor deal, a group of managers will be joined by Odyssey Partners L.P. and Donaldson, Lufkin & Jenrette Capital Corp. in a group called CAL Holdings, which will carry out the merger.

The group will assume $52 million in Caldor debt and its lease obligations. May will keep a 20% equity of the new Caldor company. The deal is set to close early next month.

There was little reaction in the stock market, where May shares eased 12.5 cents to $49 in New York Stock Exchange trading. The deal had been widely anticipated.

“It was a mild positive for May, one that should have negligible impact on the balance sheet,” said Jeffrey Edelman of Drexel Burnham Lambert.

Another analyst, noting the spinoff of the Venture division, said: “It looks like a good deal for shareholders.”

May said it had been told that commitment letters for the financing are in place.