Oct 8 Two private equity firms agreed to a $166
million settlement of a lawsuit that accused them of stripping
assets from the Mervyn's retail chain and pushing the former
unit of Target Corp into bankruptcy, according to court
Creditors had sued Sun Capital Partners, Cerberus Partners
and others in Delaware's bankruptcy court for a series of
transactions stemming from the $1.25 billion leveraged buyout of
Mervyn's from Target in 2004.
The creditors blame the funds along with others of stripping
Mervyn's of valuable real estate, leaving the company insolvent
and unable to repay creditors when it filed for Chapter 11 on
July 29, 2008. The chain was liquidated and went out of business
during its bankruptcy.
At the time of its bankruptcy, Mervyn's operated 175 stores
in California and the southwestern United States, and employed
18,000. While the company had reported sales of $2.5 billion in
its final year before its bankruptcy, it had a net loss of $64
Under the terms of the settlement, creditors will release
all claims against the investment funds. The funds denied all
allegations made in the creditors' lawsuit, which was filed in
The investment funds were accused of transferring Mervyn's
real estate to entities they controlled which were beyond the
reach of creditors. The funds were also accused of raising
Mervyn's rent as well as extracting hundreds of millions of
dollars in management fees and dividends.
Spokesmen for Cerberus and Sun did not immediately return a
call for comment.
The case was brought by the Cooley law firm.
A hearing to approve the settlement has been scheduled for
Oct. 29 in Wilmington.
The bankruptcy case is Mervyn's Holdings LLC, Delaware
Bankruptcy Court, No. 08-11586 and the creditors lawsuit is
Mervyn's LLC et al v Lubert-Adler Group IV et al, No. 08-51402.