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Analysts: Still Early To Call Barneys’ Fate

Analysts here weighing in on the unsolicited bid for Barneys New York by Fast Retailing Ltd. mostly took a "wait and see" approach to the proposed deal, and at least one other analyst, based in New York, wondered if a third bid from another party...

TOKYO — Analysts here weighing in on the unsolicited bid for Barneys New York by Fast Retailing Ltd. mostly took a “wait and see” approach to the proposed deal, and at least one other analyst, based in New York, wondered if a third bid from another party would surface.

Kana Sasaki, equity analyst at the Equity Research Division of Mitsubishi UFJ Securities, said from a financial perspective, there were no looming concerns with Fast Retailing, the Tokyo-based owner of fast-fashion chain Uniqlo, buying Barneys New York. “But because the business model is totally different from each other, it is still early to see if we can expect the synergy effect,” Sasaki said.

Fast Retailing on Thursday offered Jones Apparel Group $896 million for Barneys, a 9 percent premium over a prior bid of $825 million from Dubai-based investment firm Istithmar.

“Bidding for Barneys is one of the right decisions for Fast Retailing, which has enough money on hand to invest,” said Yasuo Takauji, analyst at Kazaka Securities, who sees the Japanese retailer in a growth mode. “[Fast Retailing’s] expansion is on a good pace. Barneys has high [brand] recognition and bidding for it is good for Fast Retailing [as a way] to heighten its own recognition.”

Takauji added that at this point Fast Retailing did not need to buy Barneys Japan, which is not part of the deal, because the “main purpose of this bidding [for Barneys New York] is to showcase [Fast Retailing’s] name on the global stage.”

“Fast Retailing wants to become a global company, and heightening its recognition, especially in the U.S., is necessary,” explained Miho Asaba, an analyst at Tokai Tokyo Research Center. “Fast Retailing has bought several firms so far, but most of them have not shown remarkable business performance. As for this proposal, we need more time to evaluate the cost-effectiveness [of the deal].”

In a research note Friday, Dana Telsey, chief research analyst at the Telsey Group, said the market for luxury brands was hot. “A combination of exclusivity and potential for growth with a proven brand, such as Barneys New York, is quite valuable. With two bidders now having come forward, could there be a third?”

Under the Istithmar agreement, Jones can enter into discussions with other potential buyers, but must pay a termination of $20.6 million. If Jones ends the deal after July 22, the fee rises to $22.7 million. But the breakup fee should not be a factor in the ultimate sale of the company, Telsey said.

While both of the Barneys bidders are from overseas, the brand already has recognition in Asia and there is more growth potential there than in the Middle East, making Fast Retailing the better fit.

“Strategically, it is our view that the Fast Retailing combination makes more sense. Fast Retailing already sells into Barneys, as well as having many other wholesale accounts and has recently been expanding its store footprint in the U.S.,” Telsey said in the note. “This understanding of both U.S. and Japan, both key markets, gives Fast Retailing a significant operational advantage over a financial buyer.”