September 4, 2008 / 11:41 AM / 11 years ago

Mervyn's suit blames ex-owners for bankruptcy -WSJ

Sept 4 (Reuters) - Department-store chain Mervyn’s LLC has sued its former private-equity owners, saying they stripped it of valuable real estate then nearly doubled its rent, pushing it into bankruptcy protection five weeks ago, the Wall Street Journal said.

The purchase of Mervyn’s in 2004 by a high-profile group including Cerberus Capital Management and Sun Capital Partners was structured as two separate transactions, one for the retailer and a second one for the retailer’s real estate.

The suit alleges that this complicated structure enriched the private-equity firms while leaving the retail operations insolvent, the paper reported.

“The 2004 transaction is a transaction that ultimately led to Mervyn’s bankruptcy,” the suit claims, calling it a deal that “cannot withstand scrutiny”.

Mervyn’s, based in Hayward, California, had 177 stores in seven states, employed about 18,000 people and had annual revenue of about $2.5 billion. The 59-year-old retailer has so far announced plans to close 26 stores and fire about 1,700 people as part of a restructuring plan.

No one at Mervyn’s, Cerberus or Sun Capital was available for immediate comment. (Reporting by Sweta Singh in Bangalore, editing by Will Waterman)

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