Return to search

Lubert-Adler-backed Mervyns to liquidate

Department store Mervyns, bought in 2004 by Lubert-Adler, Cerberus and Sun Capital for $1.2bn, will liquidate after filing for bankruptcy protection in July. Mervyns blamed the decision by its private equity-backers to separate its real estate assets from the operating company as the reason for the failure.

The bankrupt private equity-backed US department store Mervyns will to liquidate its business and wind down operations after failing to return the company to profitability since filing for Chapter 11 protection in July.

California-based Mervyns will hold liquidation sales at its remaining 149 locations and auction off the store leases. The company said holding out of business sales during the holiday season would best maximise value for company creditors.

“We are disappointed with this outcome but the company’s declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action,” John Goodman, chief executive officer of Mervyns, said in a statement.

Mervyns has previously pinned the blame for its bankruptcy on the consortium of private equity and real estate firms that took it private in a $1.2 billion deal in 2004. In a lawsuit filed recently, the department store said the decision by funds controlled by Lubert-Adler Real Estate, Cerberus Capital Management and Sun Capital Partners, to transfer control of Mervyns real estate assets and lease them back to the company at market rents led to the company's failure.

The company said the private equity firms “siphon[ed]” around $1 billion in real estate assets from the company to leverage the buyout. The private equity firms have denied any wrongdoing.

Mervyns: liquidating

Cerberus sold its stake in the department store company to Sun Capital last November, according to media reports at the time. Others named in the suit include Target; Klaff Partners’ joint venture with Lubert-Adler; Goldman Sachs Mortgage Company; Archon Financial; LaSalle Bank National Association and Greenwich Capital Financial Products.

Mervyns is one of 34 private equity-backed companies that have filed for bankruptcy in 2008. Earlier this month, Apollo Global Management portfolio company Linens ‘n Things said it would liquidate its remaining stores after a deadline passed with no new bids submitted to buy the bankrupt company. The business collapsed under debt obligations it couldn’t meet because of declining profits and the increasing prices of raw materials and fuel. Apollo bought a $201 million stake in Linens 'n Things in 2006. The company filed for Chapter 11 protection in May.

Linens 'n Things will be sold for about $476 million to a liquidation group consisting of Gordon Brothers Retail Partners, Great American Group, Hilco Merchant Resources, Hudson Capital Partners, SB Capital Group and Tiger Capital Group. The sale includes the business’s remaining 371 stores.