At Mervyns Today, a Bankruptcy Filing

Back when Mervyns was still Mervyns California, it ran radio ads featuring a jingle that's still stuck in my head. "At Mervyns today ... we'll help you find a way ... to make your shopping day a little easier ..."

But Mervyns California got bought by Dayton Hudson, and Mervyns Minneapolis wasn't successful enough in Dayton's positioning as a soft goods version of Target. Neither as fancy as Macy's or Dillards, nor as inexpensive as Target or Wal-Mart, Mervyns underperformed and was sold in 2005 to a private-equity group including Cerberus Capital Management, Lubert-Adler and Sun Capital. The $1.2 billion deal was financed with about $800 million in debt, according to the Wall Street Journal.

New management slimmed down operations to seven states, but bet heavily on California and other markets where foreclosures and job losses are enormous.

Cerberus and Lubert-Adler are both real estate players, and Mervyns management has been peeling off high-value locations. Mall owner Macerich proved prescient, paying $430 million in December for 43 Mervyns locations, including 13 in its own centers. The move gives Macerich control over anchor spaces that might otherwise have sat vacant as the case winds through bankruptcy proceedings.

Says the Journal:

But while thousands of employees would lose their jobs and their vendors would get hurt in a Mervyn's liquidation, the private-equity buyers wouldn't stand to take much of a financial hit. That is because when they bought the company they structured the $1.2 billion deal as two separate transactions -- one for the retailer and a second one for the retailer's real estate.

The real-estate arm has been a lucrative investment, according to people familiar with the deal. It leased many of the stores to Mervyn's and has sold and leased certain properties to other retailers. And through sale-leaseback transactions and the appreciation of real-estate values over the past several years, the buyers have more than doubled their money on the real-estate investment. Those profits have far exceeded losses on the retailer, according to these people. In a bankruptcy of the store operations, the real-estate arm would become a creditor.

"When chains the size of Bennigan's and Steak and Ale shut down, usually it's about their debt level, not their operations," said Imbergamo. "Sometimes, the middle is the worst place to be."

Video: Classic Mervyns commercial featuring Candi Milo (plus bonus spots from the defunct Rhodes furniture chain)