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Sun Capital triumphs in ShopKo battle

After roughly six months of negotiations with Goldner Hawn Johnson & Morrison, ShopKo has agreed to be acquired by Sun Capital Partners in an $877m deal.

Give ShopKo Stores some credit for being patient. Minneapolis buyout shop Goldner Hawn Johnson & Morrison agreed to acquire the discount retailer back in April, but after four subsequent amendments to the deal, all boosting the offer price, the Green Bay, Wisconsin-based company came to an agreement with a rival private equity group, the Boca Raton, Florida-based Sun Capital Partners. The deal, representing a roughly 20 percent premium over Goldner Hawn’s April agreement, values the company at roughly $29 a share, or $877 million (€733 million).

ShopKo sold to Sun Capital Partners

Goldner Hawn will receive a $13.5 million break up fee for its efforts.

After its six-month dance with Goldner Hawn, ShopKo appears ready to move on. The company cited for its decision, Sun Capital’s financial resources, its retailing background and the firm’s “experience in successfully completing transactions of this type”. The deal is expected to close in either December of this year or in January 2006.

Sun Capital will be using its new Sun Capital Partners IV fund for the transaction. The firm raised the vehicle this summer, closing on $1.5 billion in short order. Part of the enthusiasm for the fund came from Sun’s past experience in the retail sector, where it has made bets on the likes of Best Buy cast-off Musicland Group and former Target subsidiary Mervyn’s (teaming with Cerberus Capital Management and Lubert-Adler/Klaff Partners).

Since raising the new fund, Sun Capital has been proactive in putting the capital to work. In the last month alone the firm acquired Honeywell International’s Indalex Aluminum Solutions unit, entered into exclusive negotiations for Sara Lee Corp.’s intimate apparel business, bought packaging outfit Exopack Holding and just today announced the acquisition of restaurant operator Garden Fresh. The firm also executed a realisation earlier this month, selling recycler Alsco Metals Corp. to strategic buyer Aleris International for $150 million.

To finance the ShopKo deal, Wachovia has been tapped to lead the debt syndicate.

The investment, similar to other retail buyouts, will have significant exposure to real estate, and like Sun’s deal for  Mervyn’s, it is partnering with Lubert-Adler Partners, as well as Developers Diversified Realty and Elliot Management.

Morgan, Lewis & Brockius served as counsel to Sun, while Sidley Austin Brown & Wood and Godrey & Kahn acted as legal advisors to the special committee and the board of directors, respectively. Merrill Lynch was the financial advisor to the special committee.

ShopKo operates stores throughout the Midwest, Mountain and Pacific Northwest regions of the US. The company, with annual sales in excess of $3 billion, runs 137 ShopKo branded stores and 218 outlets operating under the Pamida name. ShopKo has struggled recently, as its same-store sales are down roughly six percent this year.