By  on July 5, 2005

NEW YORK — At Saks Fifth Avenue, there's irony, controversy and a future that's got everybody guessing.

SFA has many difficulties, but the brand image remains strong, and given the current mergers and acquisitions climate, the business is appealing as an acquisition target, particularly since Neiman Marcus Group and Barneys New York got sold earlier this year.

No movement to sell is apparent, but the Saks Inc. board is known to be weighing the future of its Saks Fifth Avenue division, even as federal probes continue into its chargeback and related accounting practices. Meanwhile, investor Helu Carlos Slim of Mexico is buying up stock and currently owns some 18 million shares, or about 8 percent of shares outstanding. The stock is depressed, but has crept up slightly, closing Friday up 0.42 percent to $19.05 on the New York Stock Exchange.

"I can tell you there has been a ton of discussions at the board level," said a real estate source. "Brad [Martin, Saks Inc. chairman and chief executive officer] is a financial animal. In his blood, he's not a merchant. The right financial deal might prove interesting."

Especially given all the legal entanglements at SFA — which resulted in Martin's bonus being cut or eliminated and the dismissal of his brother, Brian, a senior vice president — and Martin's other growing business activities outside Saks.

"It's clear that the price Neiman Marcus got must be appealing to Brad and the Saks people," said one executive in the deal-making field.

The $110 billion in private equity funds seeking acquisitions certainly makes the timing right for a sale of SFA.

"The environment for sellers has not been this strong in a long time, given the general economic conditions, the low interest rates, the availability of capital and the need on the part of strategic buyers to get bigger," observed William Susman, president and chief operating officer of Financo Inc.

According to one competitor to Saks, "The most likely scenario is that a private equity firm, or consortium of private equity firms, buys Saks Fifth Avenue. They have the appetite for retail. A private equity consortium bought the Neiman Marcus Group, as best of class. With Saks, the approach would be different. They could buy it on the cheap, and use capital to make a run of it. There is significant upside potential."

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