By  on September 23, 2005

NEW YORK — Looks like Saks Inc. is still waiting for better prices regarding bids for its divisions while Bon-Ton Stores may make another run at the company.

The Saks Inc. board is also leaning toward keeping Saks Fifth Avenue, according to buy- and sell- side analysts.

A spokeswoman for Saks declined comment.

As reported, Saks recently rejected a $1 billion bid from The Bon-Ton Stores Inc. for its northern department store group, consisting mainly of stores under its Carson Pirie Scott nameplate. According to sell-side analysts, Saks was looking for $1.5 billion for the entire group.

A buy-side analyst said Saks made the right choice because "Saks could get close to $1 billion for its Carson Pirie Scott division." The analyst believes there is interest also for Saks' 41-unit Herberger's and its 47-store Younkers nameplates.

Sell-side analysts feel Saks still prefers to sell the northern department stores as a group, rather than piecemeal by nameplate. Some analysts, shareholders in Bon-Ton, said the retailer is still keen on acquiring the northern stores, and noted that talks could start up again because the two sides are seriously interested in pursuing a deal. Analysts said a deal could happen if the parties can meet on a price in the range of $1.2 billion.

Regarding SFA, a financial source close to Saks' bankers said the board had been split on whether it should sell the high-end chain. R. Brad Martin, the retailer's chairman and chief executive officer, was advocating to keep SFA, which management is trying to turn around. The source said the board is now leaning toward keeping the chain. SFA includes its core nameplate business and the Off 5th stores.

The change of heart, the source said, doesn't necessarily reflect an agreement with Martin's contention to keep SFA, nor is it a vote of confidence that the turnaround is progressing. "Basically, they're just deciding that they don't want to sell," the source said. Or at least not sell right now.

Sources in the industry said the goal of the Saks board is still to sell the entire company, and that executives on the management team also now believe the company should be sold. The hurdle is price. The valuations discussed by potential bidders have fallen short of expectations.Meanwhile, shares of Saks continue to trade in the $18 range. Another industry contact, who also believes the board will sell SFA at some point, doesn't see a sale of it until shares of Saks Inc. climb. The individual, who requested anonymity, said the "ideal" time for a sale of SFA would be following a "bump-up" in the stock price.

What would jolt the stock? The source said it would be when comp-store sales at SFA show positive, consistent momentum, suggesting a successful turnaround. The same source said there could be another opportunity to sell SFA in the next few weeks, depending on how strong September sales results are, and how October comps are tracking.

Until then, a buy-side analyst said the board is either close to rejecting or has rejected the two bids for SFA. It is unclear who made the bids or the dollar amount. However, a sell-side analyst at a large institutional firm said the Saks board wasn't happy with the bids "because they were too low."

However, the wait for a better comps trend potentially could stretch over months, not weeks.

"Saks doesn't know who its customer is ... and it doesn't provide the service that's at a Nordstrom nor as elevated a product that's at Neiman Marcus," observed Jennifer Black, an analyst at the firm that bears her name. She also noted that "business is tough" at SFA and attributes that in part to a "lack of cohesiveness within the store."

As reported last month, several private equity groups were in the hunt for SFA, and Saks accepted bids for the division even though it wasn't officially up for sale. Bankers specializing in mergers and acquisitions said there is intense interest among buyout shops for SFA, and at least one noted that Saks is asking for a premium for the property.

While it could not be ascertained how high a premium was sought, sources such as bankers and analysts have said that Saks was comparing itself with Neiman Marcus Group, which was sold to buyout firms Texas Pacific Group and Warburg Pincus for $5.1 billion earlier this year.

The premium garnered by Neiman Marcus was more than 35 percent. But the market perception is that Neiman's is a top performer, well beyond the reach of SFA, and well worth the premium.The numbers back up the claim. In its most recent quarter, Neiman's said net income grew by 66.8 percent on a revenue gain of 8.5 percent, while same-store sales jumped 9.6 percent. Revenues at the Neiman Marcus nameplates rose 7 percent, while those at Bergdorf Goodman rose 14.5 percent. SFA, meanwhile, has posted inconsistent results over the past four months. In May, June and July, same-store sales showed gains of 0.8, 7 and 4.1 percent, respectively. In August, same-store sales rose 5.3 percent.

Saks also has been in discussions with several parties regarding the sale of its preteen chain, Club Libby Lu. Forever 21, which earlier this year purchased the Gadzooks chain, was interested in buying the 51-unit Club Libby Lu, but has since dropped out of the bidding process.

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