By  on February 8, 2005

NEW YORK — In the case of Saks Inc., breaking up is hard to do.

Four years ago, a plan to spin off its Saks Fifth Avenue and department store divisions into two separate public entities was aborted due to concerns about the recession and bondholder opposition on how to split the debt.

Now, with deal-making fever spreading through retailing — from Federated Department Stores in talks with May Department Stores to speculation the Smith family might be looking to sell all or part of its majority stake in Neiman Marcus Group if the price were right — there’s increasing talk about the possibility of revisiting a breakup or a sale scenario for Saks Inc. The $6 billion Saks Inc. has less debt on its balance sheet, dozens of weak stores were sold off recently, and the new team at Saks Fifth Avenue is stacked with talent and striving to turn things around.

There’s also pressure to create shareholder value, considering the Saks Inc. stock price has been wallowing for years. Shares traded at close to $40 in July 1998, when Saks Inc. [then called Proffitt’s] bought Saks Fifth Avenue. They closed at $14.25, down 10 cents, on the NYSE on Monday. The 52-week spread has been from around $11 to $17. Archrival Neiman Marcus has a 52-week range of $47.48 to $73.40 and closed Monday at $71.02, up $1.32.

“If Brad felt he could create more shareholder value by selling an operation, he would do it in a heartbeat,” said a former Saks executive, referring to R. Brad Martin, Saks Inc. chairman and chief executive.

“Speculation [on a Saks Inc. breakup] has intensified following the Nov. 17, 2004 announcement of the Sears-Kmart deal; SKS shares are up 22 percent off their 52-week low of $11.85,” Deborah Weinswig, managing director of U.S. equity research at Citigroup Smith Barney, wrote in a January research report on the retailer, initiating coverage.

“In a breakup, Saks Fifth Avenue would have a share value of between $7.22 and $5.81, while the Saks Inc. department store group would range from $9.77 to $7.66, for a total share value of around $17.

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