RETAILING : Marshalls Chain Sells for $550 Million

Melville Corp., in the process of re-evaluating all of its businesses, said Monday that it is selling its Marshalls discount clothing business to TJX Cos. for about $550 million in cash and stock.

Melville, which owns specialty retailers including CVS drugstores and Kay-Bee toys, decided to sell Marshalls as a result of an ongoing review of its operations. The review, which the company said was aimed at raising the price of its stock, is expected to be finished later this year.

Melville has suffered from sluggish sales for much of the year.

Marshalls is likely to be a good fit for TJX, which owns off-price retailers including T.J. Maxx and Chadwick’s of Boston.

Proceeds of the transaction will be used to reduce Melville’s debt. But in the short run, the sale will lower Marshalls’ contribution to Melville’s earnings during the fourth quarter, when the deal is expected to close.

Melville said that in addition to lost Christmas-season sales, the transaction will also reduce after-tax earnings by about $195 million in the fourth quarter to write down its interest in Marshalls. In the fourth quarter of last year, Melville reported profit of nearly $212.7 million, or $1.97 a share.

Marshalls had 495 stores in 40 states and Puerto Rico as of Sept. 30. Its sales last year represented $2.8 billion of Melville’s total 1994 sales of $11.3 billion.

In addition to Marshalls, CVS and Kay-Bee, Melville operates Wilsons and Linens ‘n Things. TJX’s other divisions include Winners Apparel Ltd. and Home Goods. Its sales for the year ended January, 1995, totaled $3.8 billion.

Melville said that under the definitive agreement, it is to receive $375 million in cash and $175 million in TJX convertible preferred stock.

Completion of the transaction is subject to regulatory approval and certain contract conditions. TJX said it already has received commitments from a group of major banks for the cash portion of the purchase price and for anticipated working capital needs.

On the New York Stock Exchange on Monday, Melville rose 50 cents to close at $35.50 and TJX eased 12.5 cents to $14.50.