By  on April 26, 2006

NEW YORK — First-round bidding for Jones Apparel Group is wrapping up, and lead contenders for the $5 billion company are said to be private equity players, including Cerberus Capital Management, Bain Capital and Texas Pacific Group.

Separately, Perry Ellis International could decide this week whether to bid for Eddie Bauer, financial and industry sources said.

On the Jones front, one banker familiar with the sales process said bids were expected this week. Another financial source with close ties to the apparel sector said Jones chief executive officer Peter Boneparth is still in discussions with private equity firms regarding their possible offers for the apparel giant. One private equity firm said to be serious about Jones is Cerberus Capital Management, while others circling include Bain Capital and Texas Pacific Group, which owns J. Crew and, with Warburg Pincus, holds Neiman Marcus Group.

Jones is believed to be looking for bids at $40 per share, but private equity contacts said $37 to $39 a share might be more realistic. Opening bids could also depend on the firm's first-quarter earnings results, which are expected to be released today. A spokeswoman for Jones declined comment Tuesday.

WWD broke the news that Jones was on the auction block in late March, which was subsequently confirmed by the company. Since then, Jones has consolidated its top-level executive ranks. The changes include executives such as Rhonda Brown, president and ceo of the footwear, accessories and retail group, leaving the company. Andrew Cohen was promoted to ceo of wholesale footwear and accessories, while Heather Pech was promoted to ceo of company-owned retail footwear and apparel.

Boneparth told WWD at the time of the executive changes that the company runs its "business regardless of what the ultimate disposition of the company could be. Whether something happens to the company has nothing to do with these changes."

But given the amount of cash sloshing through the private equity players — with some observers estimating there's $300 billion out there globally to be invested this year alone — Jones isn't the only game in town. The M&A deal-making also is heating up for Eddie Bauer. Next Monday, Eddie Bauer Holdings Inc. is expected to refile its Form 10 registration statement with the Securities and Exchange Commission. The original filing of the Form 10-12G, which would allow shares of the company to trade on the Nasdaq once approved, was pulled in January. The corrected copy must be filed with the SEC by May 1, and SEC review is expected to take 60 days.That anticipated refiling has made the retailer the latest possible acquisition candidate, fueled in part by the company's hiring last week of Goldman Sachs on retainer to help evaluate any bids that may be pitched to it. Officially, though, Eddie Bauer says it's not for sale.

Financial sources on the West Coast pinpointed Perry Ellis as one of the strategic firms interested in acquiring Bauer. A few financial sources said Perry even might consider a hostile bid.

George Feldenkreis, chairman and ceo of Perry Ellis, declined comment Tuesday on a Bauer bid, but stated that, in general, the company "would not do a hostile offer" for an acquisition target.

Last month, Perry Ellis agreed to buy London Fog's Pacific Trail outerwear brand, but then learned that London Fog needed to file for Chapter 11 bankruptcy court protection. London Fog filed in Las Vegas on March 21, and Perry Ellis became the "stalking horse" in the bankruptcy court auction for Pacific Trail. Its $14.5 million bid was subject to better offers, per bankruptcy court procedures. Perry Ellis was subsequently bested by Columbia Sportswear Co., which won the bidding at $20.4 million.

A source close to Perry Ellis said the company is looking for acquisitions that are accretive to the company's bottom line, and that "retail can play a part of it." The strategy would be in line with that of Liz Claiborne, as it did with Mexx and other specialty brands under its umbrella. It's also similar to what Jones did, by acquiring Barneys New York.

While manufacturers haven't always had the best of reputations for their ability to operate freestanding retail stores, and some have even pulled back and shuttered sites, the consolidating department store world has forced them to reconsider their retail strategies. An executive of an apparel firm explained that another reason is that technology has made it easy for retailers to be both brand managers and importers.

The source close to Perry Ellis said the company prefers "friendly" mergers, and did not rule out the possibility of an acquisition of Eddie Bauer. This source explained that Perry Ellis could bring synergies in design and sourcing, as well as international licensing expertise to any deal.Meanwhile, Wall Street has continued to speculate that VF Corp. might also make a run for Eddie Bauer. Virginia Genereux of Merrill Lynch wrote in a note Monday previewing VF's earnings, which were reported on Tuesday, "We estimate an acquisition of Eddie Bauer would be only 1 to 3 percent accretive for VF in the first year given its depressed margins and higher interest rates."

During VF's conference call on its earnings, executives at the apparel giant declined comment about Bauer, but said its acquisitions criteria included lifestyle brands that had a retail component and were outdoor-focused.

There is also speculation among financial sources that an opening bid could be in the $16 per share range, and should a bidding war occur, rise as high as $17 or $19 per share. Bauer's operating margins have been in the 4 percent range, sources familiar with the company said. Bauer's margins, they said, should be closer to 10 to 12 percent, still slightly lower than those of the bigger apparel firms, where some have margins in the low-teens percentage range.

For now, one source familiar with the Bauer scenario said that anyone looking to bid would wait until at least after the May 1 filing to review the company's updated financial information. One reason why the timing of an offer in the next two or three months seems critical, said a financial source familiar with Bauer's bankruptcy history, is that the company has net operating losses that can be converted and preserved before a change of control occurs, provided a certain time line is met per the U.S. tax code.

Bauer spent time in bankruptcy proceedings when its then-parent Spiegel Corp. filed for Chapter 11 bankruptcy court protection.

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