LONDON — With deep pockets and ambitious plans to expand internationally, Galeries Lafayette has entered into talks to acquire Britain’s House of Fraser chain of department stores.
Industry sources said this week that House of Fraser has been seeking to rationalize its shareholder base and seek new, strategic investors that will add value to the business and help it evolve as a multichannel retailer.
House of Fraser is pursuing a dual strategy of preparing for an initial public offering while it holds talks with trade buyers. The sources said a deal should be sealed in the first quarter of 2014.
Sources said House of Fraser is looking for an enterprise value of 400 million to 450 million pounds, or $652 million to $733 million at current exchange, and that both options — IPO or sale — remain attractive.
Rothschild is handling the IPO process, while House of Fraser is dealing with the trade sale route in-house.
“House of Fraser is very focused on doing what is right for the company, and will be seeking a reasonable and fair value” in whatever path it takes, said a source familiar with the retailer, which has 61 stores in the U.K. and Ireland and annual sales of 1.2 billion pounds, or $2 billion.
Another source said House of Fraser entered into talks with Galeries Lafayette because “they understand the department store business,” and there was potential to leverage House of Fraser’s retail network and name abroad.
House of Fraser has also built up a successful e-commerce business, houseoffraser.co.uk and a houseoffraser.com concept store, a mobile website and mobile app. In the three months to Oct. 26, online sales rose 31 percent.
House of Fraser’s buy-and-collect sales, a rapidly expanding distribution channel in the premium and luxury sectors, were up 87 percent in the year to Jan. 26, while overall Web sales were up 53 percent in that period.
Spokesmen for the French and British department stores declined to comment on the reports of a sale, which first appeared in the Financial Times and the Times of London on Wednesday.
Galeries Lafayette has been on the acquisitions trail since the sale in 2012 of its 50 percent stake in retail chain Monoprix, which left it with a cash pile estimated at 1 billion euros, or $1.38 billion.
It is also in the process of selling its 50 percent stake in consumer credit company LaSer Cofinoga.
Late last year, a bid by Groupe Galeries Lafayette to acquire rival Printemps was rejected in favor of a buyout by Qatari-backed investment fund Divine Investments SA, or Disa.
Groupe Galeries Lafayette has also stated ambitions to acquire mid- to high-end brands in ready-to-wear and accessories. The retailer already controls the Royal Quartz and Louis Pion watch chains and French fine jewelry chain Didier Guérin, in addition to its department stores, Galeries Lafayette and BHV.
The French group is also increasing its development abroad, with the opening of a unit in Beijing in October and further planned openings in Istanbul and Doha, Qatar, in 2015.
House of Fraser, which stocks fashion brands including Michael Kors, Tommy Hilfiger, Alice by Temperley and Phase Eight, has a broad shareholder base. Its chairman is Don McCarthy and his family holds nearly 20 percent of the company’s shares. Among the store’s other shareholders are private individuals and the Bank of Scotland.
A Galeries Lafayette and House of Fraser tie-up would come on the heels of a similar deal earlier this year when Italy’s La Rinascente bought the Copenhagen-based department store Illum, with an eye to creating a luxury store group.
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