By  on June 22, 2007

NEW YORK – Jones Apparel Group Inc. on Friday finally made public what Wall Street knew all week - that it was selling its wholly-owned subsidiary Barneys New York Inc. for $825 million in cash, subject to purchase price adjustments, to an affiliate of Istithmar, a Dubai-based private equity investment house, in a deal that will close in the third quarter.

Jones is looking at the possibility of using some of the proceeds in the form of a "significant return of capital to shareholders," according to Peter Boneparth, president and chief executive officer of Jones, in a conference call to Wall Street analysts Friday afternoon.

Boneparth thanked the contribution of Barneys' employees and its management team under Howard Socol. Looking at how well the company has done since Jones acquired it in 2004 for $397.5 million till the present is a "testament to their capabilities," the ceo said. The company will have a net gain from the sale of Barneys of approximately $290 million. Due to certain tax benefits, Boneparth said that the company will have net cash proceeds after taxes and transaction expenses of approximately $770.0 million.

"We see in Barneys a very nice growth asset. From our perspective...the asset required more capital investment to grow, [with the] operating margin not likely to approach [that of] our wholesale business as we go forward," Boneparth said.

After exiting some moderate businesses and divesting itself of the luxury arena, Jones will be left with "where we started," and the sale of Barneys will give the apparel giant additional financial flexibility to continue investing in its power legacy brands, Boneparth explained to Wall Street analysts. He emphasized the choices the company has made have been been with the focus on doing everything to return capital to shareholders.

"We didn't buy [Barneys] with the intent to sell it, but this is a great opportunity for shareholder return," Boneparth said.

Under the terms of the purchase agreement, Jones can consider additional, unsolicited proposals from third parties other than Istithmar to acquire Barneys, but such proposals would have to be made by July 22 and all due diligence and negotiations with a third party would have to be completed by Aug. 11. The purchase agreement also allows Jones to consider proposals from third parties to acquire all of Jones, which would include Barneys. Jones said that under this circumstance, due diligence and negotiations would also have to be completed by Aug. 11.Should either scenario come up, Jones said it would be required to pay a termination fee prior to terminating its agreement with Istithmar, which would be $20.6 million if Jones terminates the Istithmar agreement on or prior to July 22 and $22.7 million if Jones terminates after July 22.

Executives at Istithmar could not be reached for comment Friday.

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