Despite $166M store settlement, Lubert still 'did fine'

Investors led by Philadelphia-based Lubert-Adler real estate group, which invests money for Pennsylvania's public-worker pension plans and other clients, Sun Capital Partners, whose bosses include the NBA 76ers co-owner Marc Leder, and ex-Chrysler owner Cerebrus last week agreed to pay $166 million to creditors of the failed Mervyn's department store chain who the investors took through bankruptcy after buying it from Target in 2008. More on the settlement in WWD here.

What happened? "Private equity strangled Mervyn's," Bloomberg News claimed here. "Those firms bought Mervyns from Target for $1.2 billion in 2004. They promised to revive the limping West Coast retailer. Then they stripped it of real estate assets, nearly doubled its rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves, according to the company. The moves left Mervyns so weak it couldn't survive." 

The "settlement puts at least a minor dent in these firms' wallets" and "$166 million should hopefully prove a bit of disincentive" to similar strip-em takeovers, wrote PE-watcher Dan Primack at here. Reuters' Jeffrey Goldfarb said the settlement would warn buyout firms not to attempt similar tactics, though he acknowledged pre-bankruptcy creditors are getting back just 20 cents on the dollar, here.

But outside the settlement, Lubert and its partners have done well from Mervyn's. They collected tens of millions in fees, potentially hundreds of millions in dividends, and hundreds of millions more in the sales of Merwyn's former stores, like these last month.

Set it all against the payout to creditors, and what's it all add up to: profit or loss? Lubert "still made a gain," he told me. Not clear how much; there are still more properties to sell; but overall, "we did fine."