Updated from 9:25 a.m. EDT

Shares of Saks ( SKS) rocketed more than 10% Monday morning after the retailer said it sold its Northern department store group for $1.1 billion, freeing itself from the baggage of an ill-fated 1998 merger.

Bon-Ton Stores ( BONT) bought the stores, extending its Midwest presence by adding 142 former Saks stores to its 139 department stores and two furniture stores.

The Northern department store group logged $2.2 billion in sales last year, while Bon-Ton reported sales of $1.3 billion. Bud Bergren, president and CEO of Bon-Ton, said he expects the deal to immediately add to the company's earnings. The retailer will assume about $85 million of Northern's liabilities, including $35 million in capitalized leases.

Shares of Bon-Ton were recently up $4.78, or 28.7%, to $21.44.

"This merger will enhance shareholder value by providing an expanded and diversified geographic presence, economies of scale that we believe will drive great profitability and a robust retail platform from which to attract and retain key vendors," Bergren said.

Meanwhile, the deal leaves Saks squarely positioned in the high-end, luxury retail market, with its Saks Fifth Avenue Enterprise division, which includes Saks Fifth Avenue and Parisian department stores. It completes a process the company began back in April when it announced the sale of its Proffitt's and McRae's lines to Belk Inc. for $622 million in cash.

In 1998, when discount retailing was viewed as the industry's sweet spot, Saks Fifth Avenue was acquired by Proffitt's, a combination of regional midlevel department stores including Carson Pirie Scott, Bergner's, Younkers, and Parisian. Proffitt's changed its name to Saks and created the Saks Department Store Group, the original Proffitt's, and Saks Fifth Avenue Enterprises, the high-end stores that were originally Saks'.

The changes were made under the auspices of a variety of rosy predictions that were never realized. The company was soon dogged by rising debts, management missteps, accounting issues and questions about its credibility. Since the beginning of 1999, the stock has lost nearly half its value, while Brad Martin, its chairman and CEO, has remained in place.

"Over the last several months, we have thoroughly weighed strategic alternatives for our Northern Department Store Group," Martin said in a statement about the deal. "We believe this transaction is in the best interests of our shareholders, our associates, and our customers."

Amid all its problems, the market has not lost sight of the value of Saks namesake Fifth Avenue stores. With today's retail climate dominated by strength at the high-end, investors attached a premium to the stock as rumors of deals have swirled around the company based on hopes that the value could be unlocked by a break-up.

"While we continue to be optimistic that management's move to sell off the regional chains will eliminate distractions and allow it to focus on the health of its namesake brand, we expect to see improved execution in 2006," said Morningstar analyst Kim Picciola in a research note. "This is a well-known, established brand, and as long as the luxury-starved consumer continues to spend, there is no reason why the Saks Fifth Avenue division should perform so far below its peers."

Shares of Saks were recently up $1.70, or 10.2%, to $18.36.

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