Gottschalks to Acquire Harris’ 9-Store Chain

Gottschalks Inc., the Fresno-based department store chain that recently began posting a profit after years of losses, on Monday agreed to buy nine department stores for about $38.1 million in stock and debt from Spain’s largest retailer.

Gottschalks, which operates stores in Central California and three other states, said it will acquire Harris Co., a chain of nine stores in the Inland Empire. San Bernardino-based Harris is wholly owned by El Corte Ingles of Spain.

El Corte Ingles will receive 3 million shares of Gottschalks common stock and $11.5 million of 8% junior subordinated debt, due in 2004, under terms of a nonbinding letter of intent. El Corte, which will become Gottschalks’ largest shareholder, will also be given two newly created seats on Gottschalks’ board.

El Corte Ingles will commit up to $10 million more as an equity investment within three years at Gottschalks’ option, subject to certain conditions, the companies said.

“The nine Harris stores will enable us to quickly expand and strengthen our presence in Southern California,” Gottschalks Chairman and Chief Executive Joe Levy said in a statement.

“‘Being a partner with one of the largest retailers in Europe will allow us to take advantage of their considerable resources and position us for future growth,” Levy said.

El Corte Ingles reported sales last year of more than $8 billion.

“This [transaction] allows El Corte Ingles to solidify its position in the U.S. market as a major shareholder in a larger regional department store chain,” said Jorge Pont, Harris’ president and chief executive.

Gottschalks shares rose 13 cents to close at $9 on the New York Stock Exchange. Last week, its shares hit a 52-week high of $10.13 in anticipation of an announcement of a strategic alliance with another retailer.

The company reported a $1.8-million profit for fiscal 1996 after posting losses in 1992, 1993 and 1995. The retailer operates 35 department stores and 24 Village East specialty apparel stores in Central California, Washington, Oregon and Nevada. The company offers moderately to higher priced brand-name fashion apparel and home merchandise.

The Harris stores will be refurbished and converted to Gottschalks stores, using a $2-million loan from El Corte, and will carry an expanded line of merchandise, Gottschalks said.

A definitive agreement is expected to be signed in August. The deal is subject to regulatory and Gottschalks shareholder approval. The companies said they expected the transaction to be completed in the fall.