8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 30, 2005

SHOPKO STORES, INC.

(Exact name of registrant as specified in its charter)

Wisconsin	1-10876	41-0985054
(State or other jurisdiction of incorporation)	(Commission file number)	(IRS Employer Identification No.)

700 Pilgrim Way

Green Bay, Wisconsin 54304

(Address of principal executive offices)

Registrant’s telephone number, including area code: (920) 429-2211

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01

Other Events.

On September 30, 2005, ShopKo Stores, Inc. (the “Company”) received an unsolicited non-binding proposal from Sun Capital Partners Group IV, Inc., Developers Diversified Realty Corporation, Lubert-Adler Partners and Elliott Management Corporation (the “Third Party Group”).  The non-binding proposal contemplates the acquisition of the Company for $26.50 per share, states that it is not subject to any financing contingency and states that the Third Party Group would discharge the Company’s obligation to pay a breakup fee to Badger Retail Holding, Inc. (“Badger Retail”), an affiliate of Goldner Hawn Johnson & Morrison Incorporated (“GHJM”), upon the execution of a definitive merger agreement.  The special committee of the Company’s Board of Directors has determined that the proposal could reasonably be expected to result in a “Superior Proposal” under the merger agreement with Badger Retail.  The special committee has entered into a confidentiality agreement and expects to provide information and conduct negotiations with the Third Party Group.

The Third Party Group’s proposal states that it anticipates completing “confirmatory due diligence within 21 days” and that it is “prepared to sign a definitive acquisition agreement in substantially the same form as” the merger agreement with Badger Retail.  There can be no assurance, however, that the Third Party Group will make a binding proposal or, if they do, that the Company will enter into a definitive agreement with the Third Party Group.  The special committee continues to recommend the existing $25.50 per share transaction with Badger Retail and the special meeting of shareholders to vote on the merger agreement with Badger Retail remains scheduled to be reconvened for the purpose of voting on the Merger Agreement on October 17, 2005.

A copy of the proposal from the Third Party Group is attached hereto as Exhibit 99.1 and incorporated herein by reference.

The special committee of the board of directors of the Company received a letter from GHJM indicating GHJM’s disagreement with the special committee’s determination that the non-binding proposal from the Third Party Group could reasonably be expected to result in a “Superior Proposal” under the merger agreement with Badger Retail.  A copy of the letter from GHJM is attached hereto as Exhibit 99.2 and incorporated herein by reference.

On October 3, 2005, the Company issued a press release with respect to the events described above, which is attached hereto as Exhibit 99.3 and incorporated herein by reference.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Statements herein, other than historical facts, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.  All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements.  For example, the unsolicited non-binding proposal may not result in a definitive agreement for an alternative transaction.  Moreover, the Company may not be able to complete the proposed merger with Badger Retail on the terms provided in the merger agreement with Badger Retail or other acceptable terms or at all because of a number of factors, including the failure to obtain shareholder approval, the failure to obtain financing to consummate the merger or the failure to satisfy the other closing conditions.  Additional factors that may affect the business or financial results of the Company, are described in the Company’s filings with the SEC, including the Company’s annual report on Form 10-K for the fiscal year ended January 29, 2005, as amended.

ADDITIONAL INFORMATION

In connection with the Company’s solicitation of proxies with respect to the special meeting of shareholders called in connection with the proposed merger with Badger Retail, the Company has filed with the SEC, and furnished to shareholders of the Company, a definitive proxy statement and a proxy supplement dated September 19, 2005, and the Company intends to file with the SEC and distribute to shareholders a second supplement to the definitive proxy statement in the near future.  The second supplement to the definitive proxy statement is being prepared in connection with the second amendment to the merger agreement entered into by the Company and Badger Retail on September 29, 2005.  SHAREHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT DISTRIBUTED TO SHAREHOLDERS, THE PROXY SUPPLEMENT DATED SEPTEMBER 19, 2005 AND, WHEN AVAILABLE, THE SECOND PROXY SUPPLEMENT, BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION.  Shareholders are able to obtain a free-of-charge copy of the definitive proxy statement, the proxy supplement dated September 19, 2005, and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov.

Shareholders are also able to obtain a free-of-charge copy of the definitive proxy statement, the proxy supplement dated September 19, 2005, and other relevant documents filed with the SEC by directing a request by mail or telephone to ShopKo Stores, Inc., P.O. Box 19060, Green Bay, WI 54307, Attention: Corporate Secretary, Telephone: 920-429-2211, or from the Company’s website at http://www.shopko.com.

The Company and certain of its directors, executive officers and other members of management and employees may, under the rules of the SEC, be deemed to be “participants” in the solicitation of proxies from shareholders of the Company in favor of the proposed merger with Badger Retail.  Information regarding the persons who may be considered “participants” in the solicitation of proxies, including their beneficial ownership of the Company common stock as of August 1, 2005, is set forth in the definitive proxy statement as filed with the SEC.  Information regarding certain of these persons and their beneficial ownership of Company common stock as of April 30, 2005 is also set forth in the Company’s annual report on Form 10-K for the fiscal year ended January 29, 2005, as amended.

Item 9.01

Exhibits

(c) Exhibits

Exhibit No.	Exhibit Description
99.1	Proposal letter dated September 30, 2005
99.2	Letter from Goldner Hawn Johnson & Morrison Incorporated dated October 2, 2005
99.3	Press release dated October 3, 2005

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SHOPKO STORES, INC.

Date:  October 3, 2005

/s/ Steven R. Andrews                       

Steven R. Andrews

Senior Vice President

Law and Human Resources

Exhibit Index

Exhibit No.	Exhibit Description
99.1	Proposal letter dated September 30, 2005
99.2	Letter from Goldner Hawn Johnson & Morrison Incorporated dated October 2, 2005
99.3	Press release dated October 3, 2005

EX-99.1

Exhibit 99.1

September 30, 2005

Special Committee of

   The Board of Directors

c/o Mr. John Turner, Chairman

ShopKo Stores, Inc.

700 Pilgrim Way

Green Bay, Wisconsin  54304

Dear Mr Turner:

On behalf of Sun Capital Partners Group IV, Inc. or its assigns (“Sun Capital”), Developers Diversified Realty Corporation (“DDR”), Lubert-Adler Partners and Klaff Realty (“Lubert-Adler/Klaff”) and Elliott Management Corporation or its assigns (“EMC”) (collectively referred to as “Acquisition,” “We” or the “Parties”) we are pleased to submit this non-binding proposal to you with respect to the acquisition of ShopKo Stores, Inc. (“ShopKo” or the “Company”).

The Parties’ combined track record of operating successful retail businesses, unparalleled expertise in real estate, particularly in the retail sector, and proven ability to close transactions in as little as 30 days, establish the Parties as the ideal sponsor to acquire ShopKo and to position the Company for long term success.  In addition, the Parties’ financial wherewithal (over $15 billion in combined capital under management) allows us to extend this offer with no financing contingency and to move forward in the process with the utmost speed and certainty.

This letter is intended to serve only as an expression of the Parties’ intent and not as a binding obligation to consummate the contemplated transaction; any such obligation will be created only by execution and delivery of a definitive acquisition agreement.  This paragraph overrides any other conflicting provisions in this letter.

Overview of Proposed Transaction

Purchase Price.  Acquisition would acquire the Company for a purchase price of $26.50 per share, but otherwise on substantially the same terms as provided in the Agreement and Plan of Merger (the “Merger Agreement”), dated as of April 7, 2005 (as amended) including the terms of the Company’s offer to purchase any and all of its outstanding $100 million principal amount of 9-1/4% Senior Notes due 2022 in connection with the Merger Agreement.  In addition, Acquisition will discharge the Company’s obligation to Badger Retail Holding, Inc. and Badger Acquisition Corp for the payment of a breakup fee pursuant to the Merger Agreement, dated as of April 7, 2005 (as amended).

Transaction Financing.  With a combined $15 billion of capital under management, the Parties have sufficient capital to acquire the Company without external financing.  This proposal is therefore not subject to any financing contingency.

Timing & Process.  Acquisition will immediately work towards (i) completing confirmatory due diligence, (ii) signing a definitive agreement and (iii) closing the transaction as quickly as possible.  We anticipate completing confirmatory due diligence within 21 days and are prepared to sign a definitive acquisition agreement in substantially the same form as the Merger Agreement.  In addition to our relevant experience, each Party has a demonstrated track record of closing transactions in an expeditious manner on the terms initially outlined.  Acquisition is willing to work in a timely fashion and is confident it can do so with the cooperation and commitment from the Company.

Shareholder Meeting.  In order for Acquisition to move forward with its due diligence, we would request that the Company (i) move the shareholder meeting regarding the Merger Agreement currently scheduled for October 17, 2005 to October 28, 2005, (ii) declare our proposal as one that “could reasonably be expected to result in a Superior Proposal,” as defined in the Merger Agreement, and (iii) allow timely access to ShopKo’s non-public information and management.  We are prepared to execute an “Acceptable Confidentiality Agreement” as defined in the Merger Agreement.

Operating Plan for ShopKo.  While Sun Capital’s affiliates have a number of retail investments, it is the intention of the Parties to operate ShopKo as a stand alone company and we look forward to working with management and the employees of ShopKo to maximize the potential of the Company.

Overview of the Parties

Sun Capital Partners

Sun Capital Partners is a leading private investment fund focused on leveraged buyouts of market leading companies that can benefit from our in-house operating professionals and expertise.  Sun Capital invests in companies with leading market position in their industry, long-term competitive advantages and significant barriers to entry.  Sun Capital has invested in more than 95 companies since the firm’s inception in 1995, with aggregate sales in excess of $22.0 billion.  We have a demonstrated track record of closing transactions in an expeditious manner on the terms initially outlined.  Sun Capital is uniquely positioned to close transactions within a relatively short time frame due to our ability to close deals without external financing (we generally bridge financing at close using the Fund and raise permanent debt financing post-closing), a dedicated staff o f more than 60 professionals with significant transactions experience, and a decisive approach to business.  In addition, our significant investment and experience in the retail sector enables Sun Capital to move expeditiously through the transaction with the utmost certainty.  Sun Capital’s retail sector investments have aggregate sales in excess of $6 billion.  The portfolio of investments includes:

Ÿ    Mervyn’s (257 stores)	Ÿ    Nationwide Mattress and Furniture
Ÿ    Sam Goody (450 stores)	Warehouse (46 stores)
Ÿ    Media Play (66 stores)	Ÿ    Bruegger’s Bagels (250 stores)
Ÿ    Suncoast (380 stores)	Ÿ    Anchor Blue (213 stores)
Ÿ    Rag Shops (69 stores)	Ÿ    Mattress Firm (300 stores)
Ÿ    Wicke’s Furniture (33 stores)	Ÿ    MOST (80 stores)
	Ÿ    Life Uniform (200 stores)

Sun Capital has a demonstrated track record of closing transactions in an expeditious manner on the terms initially outlined.  Typically, we only need 30-45 days after the LOI is signed to close a transaction.  Following is a sample of transactions completed from 2002 through 2005, each of which closed in approximately 30 days:

Transaction	Industry	LOI Executed	Closing
Bachrach	Retailer of Men’s Clothing	1/11/2005	2/15/2005
Thermasys	Manufacturer of Thermal Transfer Products	1/7/2005	2/11/2005
Mervyn’s	Department Store Retailer	7/29/2004	9/2/2004
Tompkins	Consulting & Integration Services	5/24/2003	6/27/2003
Dura-Line	Supplier of Pipe Products	6/4/2003	6/25/2003
Musicland	Retailer of Home Entertainment Products	5/15/2003	6/16/2003
Lexington Home Brands	Furniture Manufacturer	3/8/2002	4/12/2002
ACT Electronics	Electronics Manufacturer	6/10/20021	7/12/2002
Wickes Furniture	Furniture Retailer	7/19/2002	8/9/2002
Cyrk	Promotional Products Manufacturer	11/22/2002	12/21/2002

DDR

DDR is a Real Estate Investment Trust based in Cleveland, Ohio, with a total enterprise value in excess of $13 billion.  DDR is a fully integrated national real estate firm, actively developing, acquiring, operating, managing and investing in income-producing open air community shopping centers.  Its portfolio contains over 500 retail operating and development properties and represents approximately 114 million square feet of leasable area.  DDR has a 30+ year track record as a successful commercial real estate developer.  DDR’s expertise allows it to capitalize on attractive development opportunities, create profitable joint ventures, be responsive to the market expansion needs of major tenants and enhance the value of existing assets.  Its largest tenants include some of the nation’s leading retailers, including Wal*Mart, Target, Home Depot, Lowe’ s and Kohl’s.  In addition, DDR has acted as a consolidator of high quality retail real estate and has earned a reputation for expedient execution and certainty of closing.  Within the last 20 months, DDR has acquired three significant portfolios aggregating nearly $4.0 billion of real estate assets.  DDR is listed on the NYSE under the ticker “DDR.”

                                           
¹ Given the nature of this transaction, there was no letter of intent.  June 10, 2002 reflects the date of the initial meeting between Sun Capital and ACT management.

Lubert-Adler and Klaff Realty

Lubert-Adler Partners was formed in 1997 and has invested in approximately 260 investments representing interests in $10.0 billion of real estate related assets.  These assets include retail, multifamily, office, industrial, hospitality and residential resort properties.  In December 2003, Lubert-Adler closed Fund IV, representing approximately $1.1 billion in equity capital, one of the largest U.S. focused funds in the world.  Lubert-Adler’s investors include the largest university endowments in the country and other significant institutional investors.

Lubert-Adler and Klaff Realty have been partners on all of Lubert-Adler’s retail real estate transactions for the past 8 years.  Klaff Realty, established in 1995, is a privately owned real estate investment company based in Chicago, Illinois that engages in the acquisition, redevelopment and management of commercial real estate, with a primary focus on office and retail, throughout the United States.  Klaff Realty has a fully dedicated retail team of 35 professionals with, on average, 15 years of retail experience responsible for executing the partnership’s retail real estate strategy.

Lubert-Adler/Klaff has been one of the most active real estate players in the retail industry and purchased several national retail portfolios including Mervyn’s, Service Merchandise, Levitz, Montgomery Ward’s, Hechinger’s, Breuners, Lechmere and Homelife.  Over the past eight years, Lubert-Adler has acquired over 600 properties totaling over 48 million square feet.  In addition, Lubert-Adler/Klaff has been extremely successful in redeveloping and repositioning strip shopping centers and regional malls through single acquisitions.

EMC

EMC provides services for private investment funds aggregating over $5.4 billion under the Elliott name.  Elliott Associates, L.P. and its sister fund Elliott International, L.P. (“Elliott”) are a leading private investment firm with a successful and consistent investment track record since its founding in 1977.  Elliott’s mandate and expertise include significant investments in operating companies where the firm adds value through its experience and financial expertise.  As you know, Elliott is also one of ShopKo’s largest shareholders, holding an 8% stake in the Company.

The Parties believe that we are the ideal candidate to acquire ShopKo given our qualifications and credentials as outlined above.

Finally, we wish to sincerely thank the Company’s management and its employees for the hard work they have done and continue to do in operating ShopKo.

Should you have any questions or comments regarding our proposal, please feel free to contact Marc Leder or Rodger Krouse, Co-Chief Executive Officers of Sun Capital, at 561-394-0550, or Gary Talarico at 212-588-9953.

Very truly yours,

Sun Capital Partners Group IV, Inc.

By: /s/ Gary Talarico                        

Gary Talarico

Managing Director

Developers Diversified Realty Corporation

By: /s/ Joan U. Allgood                     

Joan U. Allgood

Executive Vice President

Lubert-Adler Partners

By: /s/ Dean Adler                            

Dean Adler

Principal

Elliott Management Corporation

By: /s/ Ivan Krsticevic                     

Ivan Krsticevic

Portfolio Manager

cc:  Perry Hall

EX-99.2

Exhibit 99.2

Goldner Hawn Johnson & Morrison

Incorporated

3700 Wells Fargo Center

90 South Seventh Street

Minneapolis, Minnesota 55402-4128

612/338-5912

Fax 612/338-2860

October 2, 2005

Special Committee of

  The Board of Directors

c/o Mr. John Turner, Chairman

ShopKo Stores, Inc.

700 Pilgrim Way

Green Bay, Wisconsin 54304

Dear Mr. Turner:

We are in receipt of the notice sent to us yesterday by your counsel in connection with the non-binding expression of interest received by you from Sun Capital Partners IV, Inc., Developers Diversified Realty Corporation, Lubert-Adler Partners and Klaff Realty, and Elliott Management Corporation (collectively, the “Elliott Group”) with respect to the acquisition of ShopKo Stores, Inc. (the “expression of interest”).  We also understand that shortly after our receipt of that communication the ShopKo Board met and concluded that the expression of interest is reasonably likely to result in the consummation of a transaction that is financially better for ShopKo’s shareholders than the transaction agreed to with Goldner Hawn, which it is required to do under the existing Agreement and Plan of Merger (the “Merger Agreement”) prior to the Company enter ing into discussions with the Elliott Group or providing it with confidential information.

We disagree.

By pursuing this course of action, the Board is putting at risk a transaction that it has repeatedly determined to be in the best interests of its shareholders.  As you are well aware, our financing commitments expire on November 1, 2005 and, accordingly, we insist that the Company honor its commitment to convene the meeting of ShopKo shareholders on October 17, 2005.  We are concerned that through the Board’s actions, ShopKo’s shareholders will fail to appreciate the highly conditional nature of the expression of interest which by its own terms is “intended only to serve as an expression of the Parties’ intent and not as a binding obligation”, falsely assume that the transaction described in the expression of interest is a currently viable alternative to the transaction with Goldner Hawn and mistakenly vote against the Goldner Hawn transaction. &nbs p;If the Elliott Group then does not proceed with its proposal, which it is under no obligation to

Special Committee of

  The Board of Directors

c/o Mr. John Turner, Chairman

October 2, 2005

Page 2 of 5

do, shareholders will be left with no transaction or a transaction on significantly less favorable terms.

Under the terms of the Merger Agreement, the Company is prohibited from engaging in discussions with, or providing information to, any person with respect to an acquisition proposal unless the proposal, on the terms proposed, is reasonably likely to lead to a “Superior Proposal”.  The Merger Agreement defines a Superior Proposal as “a proposal…on terms that the Special Committee determines in its good faith judgment, after consultation with and having considered the advice of outside legal counsel and a financial advisor of nationally recognized reputation, (i) would result in a transaction that is more favorable to the Company’s shareholders (in their capacities as shareholders) from a financial point of view than the Merger and the transactions contemplated by this Agreement and (ii) is reasonably capable of being completed on the terms proposed, in eac h case taking into account all legal, financial, regulatory, fiduciary and other aspects of the proposal, including the likelihood that such transaction will be consummated.”

We believe that the Board erred in concluding that the transaction outlined in the expression of interest, which might or might not result in ShopKo shareholders receiving $26.50 per share sometime next year, could reasonably be expected to be financially superior to the transaction with Goldner Hawn, in which shareholders would receive $25.50 per share prior to the end of this month.  Assuming any reasonable return on equity required by ShopKo’s shareholders, the present value of the proposal from the Elliott Group is financially inferior to the Goldner Hawn transaction and should be recognized as such by the Board and the Company’s shareholders.  If one were to apply a discount rate of 12% per annum (which we believe to be a relatively low discount rate given the risk inherent in the proposed transaction) for the minimum four to five month period that would be re quired to close a transaction with the Elliott Group to the $26.50 per share proposed, the present value of that consideration today is less than the $25.50 per share available in just over two weeks in the Goldner Hawn transaction.

In addition to failing to recognize the financially inferior nature of the expression of interest, we believe that the Board failed to appreciate the high degree of uncertainty as to whether any transaction with the Elliott Group would be consummated.  As noted in some detail below, the transaction outlined in the expression of interest is subject to, among other things, due diligence, timing, regulatory, and financial uncertainties, any one of which could result in no transaction being consummated.

Both the Board and ShopKo shareholders should consider carefully the many uncertainties inherent in the expression of interest.  They include:

Special Committee of

  The Board of Directors

c/o Mr. John Turner, Chairman

October 2, 2005

Page 3 of 5

·

Due Diligence and Financing Uncertainties: The expression of interest is subject to “confirmatory due diligence”.  One should understand that what will be confirmed is whether the Elliott Group wishes to proceed with a transaction and whether they will continue to be prepared to proceed at $26.50 per share.  Although the Elliott Group asserts that the expression of interest is not subject to a financing condition, whether the Elliott Group arranges or provides financing for the transaction will be inextricably linked to the results of due diligence.

Goldner Hawn’s due diligence process took place over the course of many months during which time the Elliott Group showed no interest in obtaining non-public information from the Company.  We further note that the Elliott Group consists of four separate parties, each of whom presumably would have to be satisfied with the results of a due diligence investigation compressed into a timeframe of a few weeks.  One should expect that their due diligence could result in terms materially different from those set forth in the expression of interest, or a withdrawal of the expression of interest in its entirety.  In addition, the Elliott Group states that it can complete due diligence in twenty-one days, which is incompatible with the timing of the shareholders meeting, which will be convened in fifteen days.

·

Timing Uncertainties: The Elliott Group has indicated that they are prepared to move forward with a merger transaction “as quickly as possible.”  However, they fail to mention that, should they ultimately determine to proceed with the proposed transaction, it is unlikely that the transaction could be closed in less than four to five months.  The expression of interest does not take into account the time required to prepare and file a proxy statement with the Securities and Exchange Commission, the time required for SEC review of the proxy statement, and the shareholder notice requirements under Wisconsin law.  The Elliott Group will also be required to prepare and file notification under the Hart Scott Rodino Act, which could also result in unanticipated delays due to the competing retail activities of the members of that gro up.  The information provided with respect to the group’s experience at closing transactions is irrelevant in the context of completing a transaction with a publicly held company and demonstrates how little consideration that they have given to this matter.

·

Business Uncertainties and Risks to the Transaction: The Elliott Group will undoubtedly insist on a closing condition to the effect that the Company has experienced no material adverse change prior to closing a transaction.  The operating results of the Company have been deteriorating and as publicly disclosed to its shareholders, the Company expects the same factors that have resulted in disappointing operating performance to continue through the all-important holiday season.  Because the closing of any transaction with the Elliott Group will not occur before next year, disappointing holiday sales would result in

Special Committee of

  The Board of Directors

c/o Mr. John Turner, Chairman

October 2, 2005

Page 4 of 5

the Elliott Group being in the position to abandon a transaction with the Company on the terms proposed, or to renegotiate the financial terms of the transaction.

·

Shareholder Approval Uncertainty: Elliott Management Corporation and its affiliates filed a Schedule 13D with the SEC on September 6, 2005 reporting that it beneficially owned 8% of the Company’s shares.  We are unaware of any actions taken by the Company Board prior to such acquisition that would exempt any transaction proposed by the Elliott Group from the 75% shareholder approval requirement of Article V of the Company’s Articles of Incorporation.  The existence of the 75% shareholder approval requirement substantially decreases the likelihood that a transaction will be consummated on the terms proposed in the expression of interest.

We believe that the Elliott Group is most likely engaged in an attempt to cause Goldner Hawn to again raise its offer for ShopKo.  This will not happen.  We believe that if the Elliott Group had been seriously interested in acquiring ShopKo it would not have waited almost six months to announce its intentions.  The proposal from the Elliott Group comes just two weeks prior to the scheduled shareholder vote and at a present value less than the $25.50 Goldner Hawn offer.  The Elliott Group’s proposed due diligence schedule is designed to be completed a full week after the mandatory shareholder vote on October l7th.  We were also amused by the Elliott Group’s recent entreaty to the Special Committee that it not move the termination date of the Merger Agreement from November 1, 2005 to an earlier date in October.  Evidently the Elliott Group’s preference is to have Goldner Hawn’s offer stand as long as possible, theoretically putting a floor under the value of its current investment in ShopKo while they create uncertainty about the transaction.  In most competitive situations a second buyer would want the first buyer out of the way as soon as possible.  The Elliott Group is acting much more like a seller than a buyer, not surprising given the nature of their hedge fund trading business.

We also remind you of your obligations under Section 5.2(a) of the Merger Agreement.  We note that the Elliott Group has requested that you delay the meeting of ShopKo shareholders scheduled for October 17, 2005 to October 28, 2005.  Under Section 5.2(a) of the Merger Agreement, the Company is required to use its reasonable best efforts to hold a meeting of its shareholders as promptly as practicable for the purpose of voting on the Merger.  This obligation is not affected by the receipt of any proposal with respect to an acquisition of the Company.  We expect that the Company will honor its obligations under Section 5.2(a) of the Merger Agreement, and will inform the Elliott Group that the shareholder meeting scheduled to take place on October 17, 2005 will not be delayed.

Special Committee of

  The Board of Directors

c/o Mr. John Turner, Chairman

October 2, 2005

Page 5 of 5

ShopKo’s shareholders should not be misled by inaccurate or incomplete information about the Elliott Group’s highly conditional, non-binding expression of interest.

Yours truly,

/s/ Michael T. Sweeney

Michael T. Sweeney

EX-99.3

Exhibit 99.3
	NEWS RELEASE   Contacts: Media – John Vigeland (920) 429-4132 Investor Relations (920) 429-7039

SHOPKO STORES RECEIVES UNSOLICITED NON-BINDING

PROPOSAL FOR $26.50 PER SHARE

GREEN BAY, Wis. (October 3, 2005)  ShopKo Stores, Inc. (NYSE: SKO) announced today that it received an unsolicited non-binding proposal from Sun Capital Partners Group IV, Inc., Developers Diversified Realty Corporation, Lubert-Adler Partners and Elliott Management Corporation (the “third party group”).  The non-binding proposal contemplates the acquisition of ShopKo for $26.50 per share, states that it is not subject to any financing contingency and states that the acquiror would discharge ShopKo’s breakup fee obligation to Badger Retail Holding, Inc. upon the execution of a definitive merger agreement.

The Special Committee of its Board of Directors has determined that the proposal could reasonably be expected to result in a “Superior Proposal” under the merger agreement with Badger Retail Holding, Inc., an affiliate of Goldner Hawn Johnson & Morrison Incorporated (“GHJM”).  The Special Committee has entered into a confidentiality agreement with the third party group and expects to provide information to and conduct negotiations with that group.

 The third party group’s proposal states that the group anticipates completing “confirmatory due diligence within 21 days” and that it is “prepared to sign a definitive acquisition agreement in substantially the same form as” the merger agreement with Badger Retail Holding.  There can be no assurance, however, that the third party group will make a binding proposal or, if they do, that ShopKo will enter into a definitive agreement with the third party group.  ShopKo also said that the Special Committee continues to recommend the existing $25.50 per share transaction with Badger Retail Holding and that the special meeting of shareholders to vote on the merger agreement with Badger Retail Holding remains scheduled to be reconvened on October 17, 2005.

ShopKo also announced that the Special Committee received a letter from GHJM indicating GHJM’s disagreement with the determination made by the Special Committee.   

ShopKo will file a current report on Form 8-K with the Securities and Exchange Commission (the “SEC”) containing a copy of the proposal letter from the third party group and the letter from GHJM.  The current report on Form 8-K will be available on the SEC’s website, http://www.sec.gov, and on ShopKo’s website, http://www.shopko.com.  Shareholders are urged to read copies of both letters.

ShopKo Stores, Inc. is a retailer of quality goods and services headquartered in Green Bay, Wis., with stores located throughout the Midwest, Mountain and Pacific Northwest regions.  Retail formats include 137 ShopKo stores, providing quality name-brand merchandise, great values, pharmacy and optical services in mid-sized to larger cities; 219 Pamida stores, 116 of which contain pharmacies, bringing value and convenience close to home in small, rural communities; and three ShopKo Express Rx stores, a new and convenient neighborhood drugstore concept.  With more than $3.0 billion in annual sales, ShopKo Stores, Inc. is listed on the New York Stock Exchange under the symbol SKO.  For more information about ShopKo, Pamida or ShopKo Express Rx, visit our Web site at www.shopko.com.

Statements in this press release other than historical facts, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.  All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements.  For example, the unsolicited non-binding  proposal may not result in a definitive agreement for an alternative transaction.  Moreover, ShopKo may not be able to complete the proposed merger with Badger Retail Holding on the terms provided in the me rger agreement with Badger Retail Holding or other acceptable terms or at all because of a number of factors, including the failure to obtain shareholder approval, the failure to obtain financing to consummate the merger or the failure to satisfy the other closing conditions.  Additional factors that may affect the business or financial results of ShopKo, are described in ShopKo’s filings with the SEC, including ShopKo’s annual report on Form 10-K for the fiscal year ended January 29, 2005, as amended.

In connection with ShopKo’s solicitation of proxies with respect to the meeting of shareholders called in connection with the proposed merger with Badger Retail Holding, ShopKo has filed with the SEC, and furnished to shareholders of ShopKo, a definitive proxy statement and proxy supplement dated September 19, 2005, as described above, and ShopKo intends to file with the SEC and distribute to shareholders a second supplement to the definitive proxy statement relating to the second amendment to the merger agreement in the near future.  Shareholders are advised to read the definitive proxy statement distributed to shareholders, the proxy supplement dated September 19, 2005 and, when available, the second proxy supplement relating to the second amendment to the merger agreement, because they contain or will contain important information.  Shareholders are able to obtain a free-of-charge copy of the definitive proxy stat ement, the proxy supplement dated September 19, 2005, and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov.  

Shareholders also are able to obtain a free-of-charge copy of the definitive proxy statement, the proxy supplement dated September 19, 2005, and other relevant documents by directing a request by mail or telephone to ShopKo Stores, Inc., P.O. Box 19060, Green Bay, WI 54307, Attention: Corporate Secretary, Telephone: 920-429-2211, or from ShopKo’s website at http://www.shopko.com.  

ShopKo and certain of its directors, executive officers and other members of management and employees may, under the rules of the SEC, be deemed to be “participants” in the solicitation of proxies from shareholders of ShopKo in favor of the proposed merger with Badger Retail Holding.  Information regarding the persons who may be considered “participants” in the solicitation of proxies, including their beneficial ownership of ShopKo common stock as of August 1, 2005, is set forth in ShopKo’s definitive proxy statement as filed with the SEC.  Information regarding certain of these persons and their beneficial ownership of ShopKo common stock as of April 30, 2005 is also set forth in ShopKo’s annual report on Form 10-K for the fiscal year ended January 29, 2005, as amended.

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