By and  on April 12, 2007

NEW YORK — Barneys New York could soon come under foreign ownership.

According to market sources here and overseas, a private equity fund linked to the royal family of Qatar appears to be the front-runner in the bidding for Barneys, with an offer of more than $1 billion. Although any deal might still fall apart, a sale could be announced in the next few days, a number of sources in the finance and retail sectors said.

The fund is believed to have eclipsed offers from potential strategic buyers such as Neiman Marcus and Nordstrom, both of which considered the acquisition and were talking about offers in the range of $840 million.

A spokeswoman for Barneys' parent, Jones Apparel Corp., declined comment Wednesday.

It is understood the Qatar buyer is keen to stick with current management, which has made Barneys a bright spot for Jones.

The exact name of the Qatar fund could not immediately be learned, but it is said to be linked to the nation's royal family. The state-owned Qatar Investment Authority has a fund valued at around $40 billion, and the royal family is eager to develop the nation's tourism industry. Qatar, a nation of fewer than 1 million people, has the world's third-largest natural gas reserves and one of the highest per capita incomes in the world. Business leaders there, spying what is happening in nearby Dubai, are eager to develop luxury resort and large-scale retail complexes to attract tourists. Sources in the U.S. believe resort complexes could easily house small-scale, carefully edited Barneys or Barneys Co-op stores to appeal to the tourist market.

The Qatar Investment Authority also is said to be interested in British food retailer J. Sainsbury.

A subsidiary of the investment authority is Qatari Diar, a real estate investment company involved in business parks, resort complexes and shopping centers on a major scale throughout the Middle East, including the vast waterfront project Lusail in Qatar. One source overseas said Diar was seeking acquisitions in hotel management, architecture and retail — with a view to buying strong brands with formidable management and know-how.

In the last few weeks, there have been rumblings in the marketplace about an expected sale of Barneys. Some private equity firms in the U.S. are believed to be willing to pay about $1 billion for the upscale chain, far more than the $840 million strategic players were offering. Bankers and market sources said foreign investors would likely be willing to pay even more, and the bidders rapidly narrowed down to the fund from Qatar."The sum [over $1 billion] is some ridiculous amount that no strategic would ever pay, but someone from the Middle East would because they are able to see a value in the company and how it could be expanded overseas in a way that public companies in the U.S. couldn't justify," said an apparel executive working in mergers and acquisitions.

Barneys New York was founded by Barney Pressman in 1923, when it was a one-store operation in Manhattan, on 17th Street, focused on men's apparel for the value-conscious consumer. Eventually, Pressman's grandsons Gene and Bob Pressman expanded the chain, giving it a decidedly upscale focus and adding women's fashions to the merchandise mix. It was under the grandsons' rule that Barneys filed for Chapter 11 bankruptcy protection. The retailer was bought out of bankruptcy in 1999 by two investor funds, Whippoorwill Associates and Bay Harbour Management, which together owned 70 percent of Barneys. After trying to get luxury firms such as Pinault-Printemps-Redoute, LVMH Möet Hennessy Louis Vuitton and Dickson Concepts to pony up some cash to buy the specialty chain, Barneys was sold in 2004 to Jones Apparel Group for $397.3 million.

Last March, when Jones put itself up for auction, investment bankers said Barneys was easily worth at least $600 million to $700 million. By August, when Jones elected to pull itself off the market, there was considerable doubt about the future of its moderate brands and whether some of them could be turned around. Yet Barneys continued its growth projection, and is now believed to have an annual volume of $800 million, according to investment bankers.

In January, Jones was considering options for the specialty chain, from a sale to even an initial public offering. At the time, Jones posted third-quarter results and said Barneys had double-digit same-store sales in the quarter on top of comps gains a year earlier. In addition, Barneys is believed to be on track to hit its goal of $1 billion in sales by opening more flagships and smaller Co-op contemporary units.

— With contributions from Bobbi Queen, New York

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