By  on April 25, 2005

NEW YORK — With final bids due today, it looks like Kohlberg Kravis Roberts & Co. and Bain Capital Partners are in prime position in the race for the Neiman Marcus Group.

The KKR/Bain Capital joint bid is competing against the partnership of Thomas H. Lee Partners and The Blackstone Group.

Sources at several financial firms, who spoke on condition of anonymity, predicted KKR/Bain Capital is likely to come in with the winning bid because the partners are willing to accept a lower rate of return on a premium-level investment.

This suggests the winning bid could come in higher than earlier anticipated for the 37-unit luxury retailer, which includes two sites in Manhattan operating under the Bergdorf Goodman nameplate as well as 35 Neiman Marcus stores.

As reported this month, a senior executive at Vornado Realty Trust told investors during a meeting that the price tag for Neiman’s could reach $115 a share, which would push the purchase price to more than $5.5 billion.

The rationale behind such a high premium — Neiman’s shares have been trading at around $93 to $95 on the New York Stock Exchange — is a valuation model that’s not based on current operations, but on expected opportunities with the brand. An offer of more than $5.5 billion, those familiar with the bidding process said, also means the new owners would possibly have to double the store base over time to get an adequate return on their investment when they look to resell Neiman’s.

Another source close to the bidding process said his firm did not pursue an acquisition because the price was getting too high, based on his company’s valuation analysis.

With the bidding on Neiman Marcus nearing its end, hedge funds, institutional investment firm analysts and investment bankers are speculating on other deals in the market.

Most sources agree that the Saks Department Store Group of Saks Inc., if it really is for sale as some speculate, could be problematic at this point because of an ongoing internal investigation of the retailer’s accounting matters as well as a Securities and Exchange Commission formal investigation of the issue.

Regarding J.C. Penney Co. Inc., chief executive officer Myron E. Ullman 3rd outlined the company’s strategic goals in a two-day analysts’ meeting last week. Ullman said the company is on a five-year strategic plan that centers on the moderate-income shopper. While Ullman didn’t address market rumblings regarding a leveraged buyout of his company, he said J.C. Penney will be among the first to capitalize on available real estate opportunities.

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