Shares of Saks Inc. rose 4.2 percent to close at $12.49 in New York Stock Exchange trading Friday after Citigroup Inc. issued a research note indicating a takeover of the retailer is a "probability."
The Icelandic firm Baugur Group earlier last week rolled over its forward contracts from July 2007. The new contracts for Saks shares mature on July 30. Baugur doesn't currently own any Saks shares. The nine contracts give Baugur the right to acquire 12.2 million shares of common stock at forward prices ranging from approximately $12 to $23 per share.
According to Deborah Weinswig, retail analyst at Citigroup, "We view this news as an incremental positive for our investment thesis for Saks as it increases our confidence that there is a probability of a takeout deal in Saks' future."
Weinswig reiterated her "buy, high risk" rating for Saks shares, for which she has a $20-per-share target price.
According to the regulatory filing on Wednesday with the Securities and Exchange Commission, Baugur has paid $42.2 million for the forward contracts, and will pay an additional $194 million to purchase the 12.2 million shares of Saks stock under the contracts if they are settled at maturity.
The filing also repeated an earlier disclosure that Baugur has had exploratory discussions with Dubai-owned Landmark Group, a Saks shareholder, about the possibility of a joint bid for the retailer. The filing stated: "Baugur expects to hold additional discussions with Landmark."
Under the contracts, Baugur has the right to acquire 8.5 percent of Saks' stock and Landmark has beneficial ownership of 1.2 percent, or nearly 1.7 million shares. Together, they hold 9.7 percent of the retailer's common stock, should they elect to pursue a joint bid.
WWD reported Oct. 17 that Baugur was eyeing Saks and that executives from the Icelandic investment firm had met with the retailer's management. Baugur confirmed the report in an Oct. 29 SEC filing and said it might team up with Milestone Resources Group Ltd. for a joint bid. Milestone is an investment vehicle of Landmark.
Earlier this month, Iceland's Supreme Court in Reykjavik upheld a conviction against Jón Asgeir Jóhannesson, executive chairman of Baugur, for wrongdoing in bookkeeping. The court rejected charges that prosecutors had leveled against Jóhannesson, including fraud, embezzlement and misleading the market by wrong statements to the stock exchange.Forward contracts generally roll over automatically. A spokeswoman for Baugur would only say the company was obliged to update its regulatory filing because of the latest legal development.
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