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Mervyn’s Financial Situation Dire; May Be Forced To File BK

July 23, 2008

Mervyn’s is at risk of becoming the next retailer forced to file for bankrupty. Coming on the heels of Linens & Things, and Sharper Image bankruptcies, Mervyn’s represents another retailer with a significant west coast footprint.

Mervyn’s was purchased by PE firms about four years ago from Target Corporation for $1.2B. Similar in nature to Sears, the acquisition was driven mostly be real estate which was sitting under many of the stores. In fact, when takeovers occur for underlying real estate value, seperate entities are created to hold the real estate so that there is protection from losing the real estate to creditors.

In fact, if the real estate and the actual store operations were seperated, then in the event of a bankruptcy, the entity which owns the real estate could become a creditor of the operating entity running the store.

Mervyn’s hasĀ a significant presence in the bay area, including locationsĀ in San Jose, Milpitas, Campbell, Morgan Hill, Santa Clara, Fremont, Cupertino, Mountain View, Newark, Hayward, Dublin, San Mateo, Millbrae, and Redwood City. This is in addition to a several hundred thousand square foot distribution facility on Fremont Blvd. in Fremont.

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