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Getting in the Mood: Financial Players See Saks Warming to Offers

Saks Inc. could be getting ready to entertain suitors. Sources indicated that the luxury retailer is opening the door to the possibility of a sale and may even have at least two interested buyers.

Saks Inc. could be getting ready to entertain suitors.

Sources indicated that the luxury retailer is opening the door to the possibility of a sale and may even have at least two interested buyers.

Financial and industry sources said the $2.9 billion firm has changed its sentiment about considering offers, and two weeks ago was approached by at least one entity trying to float the idea of an acquisition.

Saks has received inquiries, and even offers, before. It has turned them away, saying the company is focused on its turnaround initiatives. Recently, however, the operations of the luxury retailer have progressed to the point where it could bring a higher price than what was on the table two years ago. And that, the sources said, explains why the company would be willing to at least look at an offer.

In August, Saks narrowed its net loss in the second quarter to $24.6 million, or 17 cents a share, from $51.9 million, or 39 cents, the previous year. Same-store sales rose 13.2 percent in the quarter, and total sales increased 14.9 percent to $694.1 million from $603.8 million.

Stephen I. Sadove, Saks’ chairman and chief executive officer, said at the time of the second-quarter results that “clearly we are less productive than some of the competition, such as Neiman Marcus. We have a lot of catching up to do, but the way you catch up is through outsized comp-store growth.”

Analysts said at the time that the quarterly results showed that Saks’ turnaround efforts were working.

Shares of Saks were up 3.4 percent Friday to close at $18.05 per share. The stock’s 52-week high is $23.25, and the low is $14.38. It’s unclear what potential bidders would pay for the retailer. But recent pretax multiples have remained high, about 7 percent. Saks’ market capitalization is $2.6 billion, and the company has an enterprise value of $3 billion, according to Yahoo Finance.

A spokeswoman for Saks declined comment.

A source close to Saks said that certain individuals at the retailer are “open to any [deal] that makes sense.” The source also said the company is doing fine and doesn’t need to sell immediately, but added that waiting another two or three years wouldn’t make sense considering the current economic backdrop.

The identities of the suitors that are said to have expressed an interest in Saks could not be determined. Sources said a likely U.S. candidate is Cerberus Capital Management because of the private equity firm’s history in retail acquisitions.

Some financial sources thought Permira, which recently bought Valentino SpA and Hugo Boss, was a likely candidate. Another possible suitor is PPR, parent of Gucci Group, Yves Saint Laurent and other luxury labels.

Icelandic firm Baugur Group was also considered a strong candidate to pursue Saks, the sources said. This isn’t a surprise as the investment group, which has extensive retail holdings, was mentioned in speculation as a potential buyer in July when it bought an 8.1 percent stake in Saks.

A credit analyst who spoke on condition of anonymity referred to the Icelandic firm as a conglomerate that has “deep pockets” and has made no secret of wanting to get into the U.S. market. “This investment house worldwide takes stakes in high-end companies,” the analyst said.

Other financial sources, who also point to Baugur as the ideal candidate to increase its stake in Saks, said that since much of the “heavy lifting” has been done in remerchandising Saks, the timing was right to at least see what interest there might be in the retailer — in case holiday sales turn into a bust if consumer spending pulls back.

Retail consultant Walter Loeb, of the firm that bears his name, agreed that Saks has been doing better. He said although September comp sales came in at a gain of 7.7 percent instead of an expected 9.8 percent, the results were still “very good” considering retail spending in general has been soft in the Northeast.

A sale of the company “could be disruptive at this time of the year,” Loeb said, but he added that the “growth path in both earnings and revenues would make the retailer an attractive candidate for both financial and strategic buyers.”

Loeb, like some on Wall Street, thought that potential buyers could come from overseas. “The luxury market attracts a special kind of investor,” he said.

Many sources, including those close to Saks, said Sadove has been focused on a turnaround in hopes of selling the company at a high price.

Experts said Saks remains a well-regarded name in the luxury sector. “It is a fantastic brand, with such enormous potential worldwide to improve its customer base,” said Gary Wassner, president-principal of Hilldun Factors. “The brand is still well-known and has tremendous cachet. It is a premier brand in the luxury sector.”

Wassner said Saks can be expanded into urban areas in smaller store formats similar to what Barneys New York did with its Co-op concept. Financial sources said Saks can do that, but not under its current business model. They said a new owner providing a different capital investment structure could pull off an expansion.