Penney’s Bid for Retailer Was Rejected

Dayton Hudson Corp. confirmed Thursday that it rejected a $6.8-billion takeover bid from J.C. Penney Co. earlier this year, a disclosure that may prompt other merger offers.

Minneapolis-based Dayton Hudson said it has not discussed the unsolicited bid with Penney since its board unanimously rejected the offer in February. Dayton Hudson issued the statement in response to a report in Thursday’s Minneapolis Star Tribune.

A spokeswoman for Dayton Hudson would not issue any comment beyond its press release: “The best interests of the company and its shareholders will be served by Dayton Hudson remaining independent and pursuing existing strategies with all three divisions.”

Two of Dayton Hudson’s divisions--Target and Mervyn’s--have a large presence in California. More than a third of Mervyn’s 297 stores are in the state. About a fifth of Target’s 688 discount stores are in California. The company also has a 64-store department store division with locations in the Midwest and Texas.

The disappointing financial performance of the department store division and the money-losing Mervyn’s operation have been the source of discontent within Dayton Hudson’s shareholder ranks, industry analysts noted.

“Now that everyone knows a merger offer was made, shareholder pressure on Dayton Hudson will multiply,” said Kurt Barnard, president of the New Jersey-based Barnard’s Retail Marketing Report. “I would not be surprised to see another merger offer. Penney could come back with another bid. And a major foreign company might make an offer.”

Speculation over the possibility of a merger deal may be driving up the price of Dayton Hudson stock. The Penney offer of $90 to $95 per share for Dayton Hudson was made when Dayton Hudson shares were trading in the mid-$70 range. Since then, the stock has risen steadily. It was unchanged at $92.62 in heavier-than-average trading Thursday on the New York Stock Exchange. Penney stock rose 25 cents, closing at $48.75.

To avoid any stockholder pressure for a merger deal, Dayton Hudson may be forced to sell some of its troubled operations, analysts said. Some believe Dayton Hudson has already fielded offers for its Mervyn’s chain.

“Dayton Hudson’s market value would be better if they just focused on their jewel, Target,” said one analyst, citing the Arkansas-based Dillard’s chain and the Wisconsin-based Kohl’s chain as possible suitors for the Mervyn’s property.

Kohl’s and Dillard’s have no stores in California. Retail analysts say Dillard’s is interested in establishing a presence in the state.

Although many analysts say Dayton Hudson may now be pressured to take some kind of action to satisfy shareholders, some also say the company was wise to reject the Penney offer.

“The merger does not make sense in the first place,” said Saul Yaari, an industry analyst at Piper Jaffray Cos. in Minneapolis. “In retailing, it is very tough to run one format. It’s very competitive and if you don’t do a good job, you die quickly.”

Dayton Hudson is the nation’s fourth-largest retailer, ranked just ahead of Penney. Combining Dayton Hudson and J.C. Penney would have created a company with about six different retailing formats, Yaari said.

Penney has mid-price department stores, drugstores and a life insurance business. Dayton Hudson has department stores, moderate-price clothing stores and discount stores.

The only benefit to Dayton Hudson, Yaari said, would have been greater exposure through Penney’s catalog operations.

J.C. Penney, on the other hand, is looking for external growth, Yaari said. “Penney has to grow. They have stores placed in most markets,” he said.

Plano, Texas-based J.C. Penney on Thursday also issued a short release on its February offer. The release did not attach a value to the offer, but it described the proposal as offering “an attractive opportunity for the shareholders and associates of both companies.”

Times wire services contributed to this report.