By  on September 19, 2005

NEW YORK — Saks Inc. has rejected a bid by The Bon-Ton Stores for its northern department store group, and will now try to sell the nameplates individually, financial and retail sources familiar with the negotiations said.

According to those sources, Bon-Ton was the only bidder for the northern department store group, which includes the nameplates Carson Pirie Scott, Younkers, Herbergers, Bergners and Boston Stores. Retail sources said Bon-Ton's bid was rejected because of price. Saks sought $1.5 billion for the group, but the Bon-Ton bid, said to be in the $1 billion range, was far lower than the asking price.

Meanwhile, shares of Saks on Friday tumbled 9.84 percent in trading following the sale of a block of nearly 2 million shares by Morgan Stanley, according to several traders. The stock closed at $18.60, down $2.03, in Big Board trading, with 10.3 million shares trading hands compared with an average volume of just 1.9 million. Analysts and portfolio managers at several investment firms said there was speculation midday regarding the failed Saks/Bon-Ton negotiation.

A spokeswoman for Saks could not be reached for comment.

Sources said Saks and Bon-Ton were haggling over the price for the last few weeks, but that at the end of the day the "difference" between the ask/bid range couldn't be overcome.

A real estate contact specializing in the department store sector, who requested anonymity because he's worked with both firms before, observed, "Saks made the right decision in rejecting the bid. Bon-Ton [without an equity partner] really didn't have the money for it. Now it is a question of who is going to buy the pieces of the northern department store group, and who would be interested in the different locations."

William Susman, president and chief operating officer at investment banking firm Financo Inc., said, "In today's department store industry, as Federated Department Stores and May Department Stores demonstrate, it is an advantage to have scale. While ultimately the shopper will want to have a local option along with a national option, such as a J.C. Penney and Macy's, even though Macy's on a national front is still several years away, there are also strong regional players that exist, such as Lord & Taylor and Nordstrom. The brands in Saks' northern department store group, from an awareness positioning, are below the others, and should have less appeal."The northern department store group potentially could be rudderless in the next few weeks, since George Jones will be stepping down as president and chief executive officer of the division on Sept. 30. It was his resignation, in part, announced last month, that spurred expectations that Saks was close to inking a deal for the department store group.

Bon-Ton is believed to have made the bid on its own, since talks with other buyout firms to partner in the deal for the department store group supposedly fell through. As reported, Cerberus last month decided to drop out of the bidding process, one that would have teamed it with Bon-Ton for all of Saks Inc.

The lack of play over the department store group raises concern as to whether Saks Fifth Avenue could be sold, according to an analyst on the sell side.

"SFA's business has gotten worse, and it [risks] losing value as time drags on. No one really needs SFA. There are other attractive retail [plays], and the Lord & Taylor chain, which Federated is expected to sell at some point, could be more attractive than SFA," the analyst said.

While the mergers and acquisitions activity suggests a seller's market in general, the inability of Saks to get several deals to happen suggests that it is a buyer's market when questionable assets are involved.

A buy-side analyst for an institutional investor said, "Buyout firms don't have to buy SFA, or even the department store group. They have options, such as Linens n' Things Inc." This big-box specialty retailer has been working with Credit Suisse First Boston as its advisor to identify options, including the sale of the company.

Regarding bids for Club Libby Lu, a chain of 51 units catering to preteen girls, Forever 21 had the so-called inside track, and was expected to buy the chain among some retailers and real estate professionals. As reported exclusively on Tuesday, Forever 21 dropped out of the bidding process.

"Saks thought it could get $40 million for Club Libby Lu, which equals one times the revenue number. While the operation has potential, it is still so underdeveloped. A bid for even $20 million is one that [Saks] should have taken. When we looked at the business, one problem was that everything is connected with Saks Inc., which means whoever buys it will have to build a back office for the operation to handle accounts receivables and whatnot, and that takes a lot of money," said an investor who had once eyed the preteen chain, but elected not to participate in the bidding.Too Inc., another name said to be interested in the chain, also supposedly elected to pass on the bidding.

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