The offer tops a $25.50-per-share buyout proposal by Badger Retail Holding, an affiliate of Goldner Hawn Johnson & Morrison that was first submitted in April at $24 per share. The Minneapolis-based private investment firm upped its bid last month after complaints from a shareholder that its original proposal was too low.

Executives at Cleveland-based Developers Diversified are interested in ShopKo after <a href="">closing on 32 Mervyns department stores last month for $319.1 million with joint-venture partner Macquarie Bank Ltd. Sun Capital and Lupert-Adler are partial owners of the 250-store chain, which they acquired last year with Cerebus Capital Management and Klaff Partners. DDR executives say the stores could continue operation as Mervyns' stores; get bought out by another retailer; or pending the failure of the chain, DDR could redevelop the properties into other retail uses, such as splitting the stores into developments with multiple retailers.

Boca Raton, FL-based Sun Capital has invested in a number of retail companies. Other than Mervyns, it has stakes in the 250-restaurant Bruegger's Bagels, and is majority owner of the 900-store Musicland Group, as well as the 69-unit Rag Shops.