By and  on September 1, 2010

The megatakeover rumor is back.

Shares of Saks Inc. skyrocketed 19.7 percent following a report in London’s Daily Mail Tuesday that a consortium of U.S. and British private equity firms might offer to buy the retailer for $11 a share, or $1.7 billion.

The offer sounded a bit too good to be true to some, though Saks has drawn plenty of interest in the past and is perennially looked over by investors wanting to get into high-profile, high-end retail. Traders ate up the report and drove the stock up $1.30 to $7.90, the firm’s highest close since Aug. 11 and well above its all-time low of $1.50, set in March 2009. Overall, retail stocks closed flat for the day despite word that consumer confidence perked up last month.

A Saks spokeswoman said, “We don’t comment on rumors or speculation.”

“I was very surprised,” said Jason Asaeda, equity analyst at Standard & Poor’s. “Saks is showing progress with their turnaround, but if there’s a lot of volatility in the market or the affluent consumer gets spooked again and sales fall off again, it’s going to be hard for them.”

Asaeda said the price tag of $11 a share seemed “very generous based on where the stock has been trading.”

Still, financial sources said investors, including sovereign wealth funds, have been looking into Saks, which boasts a top-shelf brand name and very attractive real estate, particularly the Fifth Avenue flagship in New York. Analysts for years have speculated the value of that store alone could exceed the company’s total market capitalization, which stood at $1.22 billion after the market closed Tuesday.

One private equity player said the only way to get to the $11-a-share valuation is to add in the value of the real estate underlying the Fifth Avenue store. Because the site doesn’t have landmark status, the building could be revamped to house retail, office and residential space, possibly making it even more valuable down the road.

The potential offer is still far lower than the $19 the stock went for in July 2005 when word surfaced that Saks Fifth Avenue might be a target in the M&A boom. Saks at the time was in the midst of the sale of its two department store divisions. It became a takeover target again in 2008 when Icelandic group Baugur took an interest in the company.

Any attempt to buy Saks would have to take into account the world’s richest man, Mexican telecommunications billionaire Carlos Slim Helú, who controls 25.6 million shares of the firm, or 16.1 percent of those outstanding, as well as Diego Della Valle, chairman and chief executive officer of Italy’s Tod’s SpA. Della Valle holds 15 million shares, or a 9.4 percent stake, via his personal investment vehicle Diego Della Valle & C. S.A.P.A.

“Anything’s possible, but it seems like a very high price,” said Laurence C. Leeds Jr., chairman of investment firm Buckingham Capital Management.

That doesn’t mean other fashion firms aren’t ripe to be taken private. “Often the balance sheets have lots of cash and the businesses are performing well and they lend themselves to leveraged buyouts,” Leeds said. “The numbers work very well” in those cases.

American Eagle Outfitters Inc. is just one example of a retailer that is seen as a potential takeover target by analysts.

How much M&A activity the fashion world ultimately sees will depend largely on how bullish private equity firms feel about the sector.

“They’ve got the cash, they need to spend it, but with the consumer being a lot more lethargic, they’re going to be a lot more cautious,” said Antony Karabus, founder and chief executive officer of Karabus Management. “I think that private equity is going to take a step back.”

While Saks’ stock soared, the rest of the retail world limped along.

The S&P Retail Index dipped 0.08 points to 396.74 Tuesday, logging a 2.1 percent drop for August. The Dow Jones Industrial Average traded briefly below 10,000, but blue chip stocks ended the day with a 4.99-point gain to 10,014.72, which translated into a 4.3 percent drop for the month.

Consumers were a little more upbeat in August but just barely. The Conference Board’s Consumer Confidence Index rose to 53.5 from 51 in July.

The Expectations Index increased to 72.5 from 67.5, while the other half of the measure of consumer well-being, the Present Situations Index, dipped slightly to 24.9 from 26.4 in July.

Lynn Franco, director of The Conference Board’s Consumer Confidence Research Center, said the modest gain was the result of an “improvement in consumers’ short-term outlook,” adding they “remain apprehensive about the future.”

Overall, consumers are about as confident as they were a year ago, when the Index was at 54.5.

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