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Neiman’s Buzz Drives Sale Price

NEW YORK — The price keeps going up.<BR><BR>Tuesday’s M&A chatter regarding the sale of Neiman Marcus Group was that a deal could fetch $115 a share, well above prior estimates of $100 to $105.<BR><BR>Names said to be eyeing the...

NEW YORK — The price keeps going up.

Tuesday’s M&A chatter regarding the sale of Neiman Marcus Group was that a deal could fetch $115 a share, well above prior estimates of $100 to $105.

Names said to be eyeing the high-end retailer include Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners.

Tuesday’s speculation was fueled by a recent investor presentation in New York  given by a senior executive of Vornado Realty Trust. The executive said he expects the price tag for Neiman could go to $115 a share, which would push the total purchase price to more than $5.5 billion. The rationale behind such a high premium — shares have been trading around $93 — is a valuation model based not on current operations, but on expected opportunities with the luxury retail brand.

Vornado could not be reached for comment.

The Vornado executive said a likely goal of private equity firms doing their due diligence of Neiman would be to ramp up the store base to 60 to 70 locations, a source said. Neiman currently operates 37 stores, including the two Bergdorf Goodman sites in Manhattan.

Several hedge funds, who have done their own leveraged buyout models on Neiman, also told WWD the high-end retailer could easily support up to 60 or 70 stores. Based on their LBO models, doubling the store base would peg Neiman earnings before interest, taxes, depreciation and amortization at $1 billion, not the $500 million predicted for the operation’s current levels.

In addition, to support 10 new store openings, the capital expenditure dollars needed would jump to about $165 million from $100 million estimated at maintaining the current operation.

The Vornado executive alluded to the investors that KKR would be one of the parties making a bid for Neiman. Several hedge fund analysts are viewing Vornado as a credible information source because of its recent deal with KKR and Bain Capital Partners for Toys ‘R’ Us. At least one fund source speculated on Tuesday that Vornado might even be willing to play a role in the real estate component should KKR have the winning bid.

KKR and Bain have joined forces in a possible bid for Neiman. Another contender was Thomas H. Lee Partners, which is partnering with the Blackstone Group. If both partnerships make a bid for Neiman, the process would necessitate a second round of bidding. Should the other two partnerships — Apollo Advisors and Leonard Green & Partners, and Texas Pacific Group with possibly a strategic partner — also submit bids, the final winner may not be known until later this month.

This story first appeared in the April 13, 2005 issue of WWD.  Subscribe Today.

The hedge funds, however, weren’t the only financial professionals weighing the pros and cons of the current M&A buzz. Analysts at two investment firms — Banc of America Securities and Merrill Lynch — recently weighed in.

Regarding an LBO of J.C. Penney, Dana E. Cohen, analyst at Banc of America, said there was “less than a 50-50” chance of it happening, given valuation, debt markets and an unclear take on management’s view of such a transaction.