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Circling Saks Inc.: Board Meets as Deadline Looms for Bids

After a two-day meeting of the Saks Inc. board this week, expectations mounted that just about the entire company could soon be sold.

NEW YORK — Following a two-day meeting of the Saks Inc. board here this week, expectations are mounting that just about the entire company could soon be sold.

Sources said Aug. 22 is a new deadline for bids, either for the northern department store group or all of Saks Inc., including Saks Fifth Avenue. Officially, though, only the northern department store group, which includes Carson Pirie Scott, Bergner’s and The Boston Store, and the Club Libby Lu specialty chain, is for sale.

According to retail and financial sources, the bidding deadline was extended by a week from Aug. 15 to provide latecomers time to prepare bids for all of Saks Inc.

A Saks Inc. spokeswoman declined comment on Thursday.

Saks Inc. typically has a quarterly board meeting in August, but sources noted the meeting was held earlier this time than in the past, perhaps signifying some pressure on the company to act.

According to sources, some board members privately are leaning to unloading the entire company, but it is not clear whether the topic came up during the meeting itself or afterward among certain members.

One retail source said the performance of the retail operations was discussed and that there is concern over whether the Saks Fifth Avenue turnaround efforts are proceeding as expected. A big test for SFA will come this fall, when the company unfurls a major cashmere promotion. Management has been talking it up.

Adding to an already complicated situation, Saks Inc. is under investigation by the government for certain chargeback and accounting procedures. Several employees have already been fired.

As previously reported, Bon-Ton Stores Inc. and Cerberus Capital Management are expected to present a joint bid for SFA and the northern department store group that could go as high as $30 a share, or a little more than $4 billion for the entire company. Cerberus already owns Rafaella Sportswear, Mervyns and Fila.

Other private equity firms said to be eyeing a run for almost all of Saks Inc. include Bain Capital Partners, Thomas H. Lee Partners and Apollo Management. Some of the private equity firms could form a consortium.

And the field of interested parties seems to be widening. This week, there were murmurings that the Blackstone Group is taking a keener interest in Saks, particularly SFA, said someone close to the private equity player. Blackstone executives could not be reached for comment.

There also was speculation that the Texas Pacific Group is eyeing the retailer. A spokesman for TPG declined comment.

TPG partnered with Warburg Pincus in May to acquire the Neiman Marcus Group for $5.1 billion, raising doubts that TPG has a strong interest in Saks. With both luxury chains under single ownership, “it would be the same company competing against itself,” said one senior executive from a designer firm.

However, one former retailer said Saks in the past had looked at the feasibility of a merger with Neiman’s, but never went through with talks.

What is all of Saks worth? To be sure, a bid near the high end of $30 a share would represent a significant premium to last Friday’s closing price of $20.25, when word first surfaced that Bon-Ton and Cerberus were joining forces for a play at Saks. Saks Inc. closed at $23.51 on Thursday on the New York Stock Exchange.

So how does one get to a share-price range in the high $20s for Saks?

Financial analysts on both the buy and sell sides pegged SFA at between $22 and $24, assuming a turned-around operation. The real estate SFA owns — including its Fifth Avenue flagship, plus flagships in Beverly Hills and Chicago — has a value range of $1.75 billion to $2 billion.

The analysts also pointed to a $1.5 billion valuation for the northern department store group. Of that group, the best-known nameplate is Carson Pirie Scott. Not included is a valuation for Saks’ Parisian business, which could be sold by a new owner, and Club Libby Lu, a small girls’ chain that is being marketed.

To be sure, the financing markets also will play a role. When the deadline for Neiman’s came due at the end of April, the credit market had just worsened, and many deals were left on the sidelines because of concern that financing might not be available. While the debt markets are healthier now than they were in April, if they were to worsen over the next month, the per-share price that Saks might command would be lower.

Another factor affecting any offer for all of Saks would be which firms actually end up bidding. The presence of a strategic player — in this case, the York, Pa.-based Bon-Ton — always boosts the price.

While SFA and Parisian officially are not for sale, the board would be pressured to sell if a strong enough offer emerged, as part of its fiduciary responsibility to shareholders.

Bon-Ton’s interest, as first reported by WWD, has been met by some skepticism in the retail community. The retailer’s business has been struggling lately and the company has grappled with its two-year-old Elder-Beerman acquisition, but Bon-Ton has been able to lower costs by combining operations. Bon-Ton operates 139 department stores and two furniture stores in 16 states, and last year generated $1.31 billion in sales. Saks Inc.’s 143-unit northern group generated revenues of $2.2 billion.

Earlier this year, the southern department store group of Saks Inc., consisting of the Proffitt’s and McRae’s department store chains, was sold to Belk for $622 million. The strategy has been to sell the department stores to feed cash into Saks Fifth Avenue and reduce corporate debt.