Federated Department Stores said Friday that it had reached two separate agreements to sell one of the few remnants of its acquisition of May Department Stores, its Bridal Group, albeit for less than the department store chain was believed to be seeking.

An affiliate of the private equity firm Leonard Green & Partners LP, has agreed to purchase the 269-unit David's Bridal and the 10-store Priscilla of Boston groups for US$750m, while the 511-store After Hours Formalwear business, including the Mr Tux stores in New England, was picked up by Houston-based Men's Wearhouse, the largest retailer of men's suits in the US, for $100m.

Federated expects to reap after-tax proceeds of $750m for the two businesses once the transactions close in the first quarter of fiscal 2007, which begins next February.

The Bridal Group was picked up by Federated as part of its acquisition of arch-rival May Department Stores Co last year and was immediately viewed as both a likely sale target and a difficult one. 

While most of the "redundant" retail operations sold by Federated since the acquisition have been department stores which went to either other broadlines retailers or real estate interests, the Bridal Group's stores tend to be located in strip malls or operate as freestanding units. 

Because of its dominant business in the US men's suit market and its growing trade in tuxedo sales and rentals, Men's Wearhouse was immediately expected to be one of the suitors for the bridal business.

But numerous sources pointed out, both before and since the deal was struck, that Men's Wearhouse wouldn't want to subject itself either to the high price tag of acquiring the David's Bridal portion of the business nor the integration difficulties of entering into David's forte in bridal gowns and wedding accessories.

The Leonard Green acquisition continues the growing trend of private equity firms buying into US retail properties, one that's resulted in the acquisition of numerous retailers in the past few years, including Burlington Coat Factory, Mervyn's and one of the properties sold off from the May stable by Federated, Lord & Taylor.

However, many security analysts were expecting the sale of the Bridal Group to fetch somewhere in the neighborhood of $1bn, although the long wait for its execution had many convinced that a lower figure ultimately would result.

However, in a research note proclaiming the last of Federated's "major asset disposition plans," Citigroup broadlines analyst Deborah Weinswig said that her firm's most recent estimate for the sale of the bridal unit was $750m on a pre-tax basis, representing about 90% of sales for the trailing 12 months.

After Hours' exclusive relationship with David's Bridal will be extended to Men's Wearhouse and its Canadian Moores division following consummation of the transactions. After Hours' management and its 4,200 employees will be integrated into the Men's Wearhouse organisation.

Terry Lundgren, chairman, president and chief executive officer of Federated, said: "While the Bridal Group did not fit with Federated's strategy for focusing on the nationwide Macy's and Bloomingdale's brands, we do believe these businesses have a promising future under the ownership of Leonard Green and Men's Wearhouse.

"We look forward to a continuing relationship between Macy's and David's Bridal, with Macy's being the exclusive department store wedding gift registry partner with David's."

George Zimmer, founder, chairman and CEO of Men's Wearhouse, said in a statement: "Combining the Men's Wearhouse and Moores brands' 654 US and Canadian locations, which rented over 1m tuxedos last year, with After Hours' 511 stores, we will have 1,165 locations that have an estimated baseline volume of 3m tuxedo rental units in North America.

"We firmly believe we can integrate the two organisations during 2007 and realise significant benefits for shareholders beginning in 2008 and beyond."

While Leonard Green is private, the public markets seemed to like the deal on Friday, sending Federated's stock up 58 cents, or 1.4%, to $42.57 a share, and Men's Wearhouse shares up $1.48, or 4%, to $38.48.

Federated was advised in the divestiture by Credit Suisse, Banc of America Securities LLC and the law firm of Jones Day.
By Arnold J Karr.