Michaels Stores said it would take a fourth-quarter charge of $3 million to $5 million to cover expenses.

"It's the economy," said Carol Dillon, general craft buyer for Michaels Stores.

Under the deal, Michaels Stores' shareholders will receive $9.50 a share in cash and $2.50 in liquidation value of preferred stock.

Michaels Stores, $60 million of convertible subordinated step-up notes due 2003, B-1/B+.

Another favorite is Michaels Stores, an arts and crafts retailer with about 600 outlets.

After Michaels Stores said that it expected to report significantly lower profits for the quarter ending on Jan. 31, its shares dropped 5/8, to 14 3/8.

The short position in Michaels Stores, a Dallas-based retailer of craft supplies, rose to 5.9 million shares, from 4.6 million a month earlier.

Michaels Stores, with 840 stores in 48 states, including its Aaron Brothers art supply subsidiary, is a favorite among analysts.

MSI Holdings said it has not been able to arrange financing for its $220 million offer to acquire Michaels Stores.

Michaels Stores has long been a contentious stock, with a large volume of short-selling and a large band of devoted bulls.