May to Acquire Marshall Field’s

May Department Stores Co. said Wednesday that it agreed to acquire Target Corp.’s Marshall Field’s department stores for about $3.24 billion in cash.

The deal would help May expand its distribution network, gain more leverage in negotiating with vendors and add bulk to better compete against rival Federated Department Stores Inc., analysts said.

Target, based in Minneapolis, put its newly revamped 62-store Marshall Field’s chain and its lower-end Mervyn’s stores up for sale in March in an effort to get more time and money to focus on its more profitable namesake discount stores.

Marshall Field’s offered a marquee name in markets such as Chicago, but Mervyn’s has stagnated because of competition from low-priced rivals such as Kohl’s Corp., J.C. Penney Co. and Target’s namesake chain.

St. Louis-based May agreed to buy the real estate of nine Mervyn’s stores that Target plans to close in the Minneapolis area.

Target said it would continue to evaluate its options for the rest of the Mervyn’s chain, which has 266 stores in 14 states.

May edged out rival Federated, parent of Macy’s and Bloomingdale’s, for Marshall Field’s, which had revenue of $2.6 billion last year, sources familiar with the situation said.

“I am surprised. I expected it would be Federated,” said Kurt Barnard, president of Retail Forecasting. “Marshall Field’s is a good name, they have good stores, and the May Co. will do justice by it.”

The chain will continue to operate under the Marshall Field’s name and keep the exclusive products, such as Frango mints, that consumers associate with the flagship store in Chicago and other Midwestern markets.

For Federated, an acquisition of Marshall Field’s would have posed some risk of cannibalizing sales at its other department stores, analysts said.

The Midwestern chain would have competed against other Federated locations at a time when shoppers continue to favor discount stores over malls, analysts said.

Federated representatives could not be reached for comment.

Because of the sale, Target said it expected to record a gain of about $1 billion in the second or third quarter.

Target immediately set plans to return cash to shareholders, saying it would repurchase $3 billion of its common stock.

Under the terms of the deal, May also would acquire three distribution centers and about $600 million of Marshall Field’s credit card receivables.

Target said it would weigh its options for Mervyn’s over the next 90 days.

The company may try to sell Mervyn’s in small, regional chunks, or sell in only the most attractive markets, shutter the rest of the stores and sell the real estate, said one retail investment banker who is not involved in the deals.

Shares of Target rose to $47.77 in after-hours trading from a close of $45.63, down 57 cents, on the New York Stock Exchange. May’s stock edged down to $28.75 after closing at $28.88, down 29 cents, on the NYSE.

Shares of Federated were not traded after hours. The stock closed at $48.83, down $1.21, on the NYSE.