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Barneys a Done Deal? Jones Apparel Said To Be Surprise 11th-Hour Buyer

It was down to the wire in the race to buy Barneys New York, and the buyer appears to be Jones Apparel Group.

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NEW YORK — The bidding for Barneys New York was heading down to the wire late Wednesday, and the winner appears to be Jones Apparel Group.

Sources said that the apparel giant had emerged as the successful bidder. A final price was not divulged.

Last week, WWD reported that an apparel maker had entered the bidding late in the process and listed Jones among the contenders. Neither Jones nor Peter J. Solomon, Barneys’ financial adviser, would comment late Wednesday.

The price tag on Barneys had been around $400 million, which is in the ballpark of a recent Jones’ acquisition; the supplier picked up Maxwell Shoe Co. in June for $345.5 million. It’s also consistent with Jones chief executive officer Peter Boneparth’s strategy of expanding the company through acquisitions.

From a financial perspective, Jones has enough cash to make the buy. In its most recent quarter, the supplier cut its long-term debt-to-sales ratio to 17.5 percent from 67.2 percent in the prior year. Lenders prefer companies to be leveraged with a ratio of no more than 50 percent. Jones also has about $45.9 million in cash and cash equivalents on its balance sheet.

Barneys was put up for sale on June 30 by Whippoorwill Associates Inc. and Bay Harbour Management, the two investors who bailed out the firm from bankruptcy in 1999. Barneys filed its Chapter 11 petition for bankruptcy court protection in January 1996. A sale represents an exit strategy for the financial firms.

Industry sources began speculating on which retailer or financial buyer would enter the bidding for the upscale retailer. Designer Elie Tahari made a bold move last month, entering the contest and making it to the second round of bidding. Contenders that have made final bids include financial and strategic players. In addition to Tahari, Nelson Peltz of Triarc Co. Inc. reportedly made a play for Barneys in conjunction with Bear Stearns’ Merchant Banking Group.

Although Jones is a surprise winner for Barneys, the company is familiar with several of the key players. Whippoorwill was a creditor in the Kasper A.S.L. bankruptcy. Kasper owns the Kasper and Anne Klein trademarks. The investment firm found a buyer for Kasper last year — Jones Apparel — to the tune of $232.5 million.

Since assuming the reins of Jones Apparel Group in 2002, Boneparth has been on an acquisitions spree, scooping up such firms as Maxwell, maker of Anne Klein footwear; the Gloria Vanderbilt Apparel Co., RSV Sport Inc., makers of L.E.I., and Kasper A.S.L., a $358 million suit and sportswear company.

In recent years, Jones has made several acquisitions, namely Evan-Picone, Sun Apparel, which made products under the Polo Jeans Co., Nine West Group, Victoria & Co. costume jewelry, Judith Jack LLC and the McNaughton Apparel Group.

Still, the purchase of Barneys would represent a significant new direction for Jones. While it has retail stores through its Nine West division, it is not really a player in the designer or luxury markets in which Barneys operates.

“The goal here is to create a bulletproof company,” said Boneparth, in an interview earlier this year. His plan has been not to rely heavily on any one customer or channel of distribution.

Jones’ stable of businesses includes better and moderate wholesale apparel, footwear and retail. In 2003, the firm’s earnings dipped 1.1 percent to $328.6 million, or $2.48 a diluted share, after the exclusion of an accounting adjustment. Sales for the 12 months ended Dec. 31 rose 0.8 percent to $4.38 billion.

Jones is still embroiled in a lawsuit with Polo Ralph Lauren over the Lauren by Ralph Lauren license. Jones, which held the license, gave it back when a dispute arose over contract terms. Essentially, the dispute centered on whether the Lauren license was linked to the Ralph by Ralph Lauren license, also held by Jones, that was due to expire in 2003.

Meanwhile, Jones has since launched Signature, a new collection that is part of Jones New York. Signature is on course to bring in sales of more than $200 million this year. But it still has to make up a huge chunk of lost sales. Lauren, with more than $548 million in net sales in 2002, dwarfed the Ralph line’s volume of just $37 million. The acquisition of Kasper helped to make up some of that volume. But the business at the department store channel, which sells many of the brands under Jones’ umbrella, such as Jones, Nine West and Easy Spirit, is still pressured. The company’s updated projection of 2004 revenues is expected to be in the range of between $4.64 billion and $4.66 billion.

The sale of Barneys raises questions about the future of management at the store, in particular Howard Socol. Socol is Barneys’ chairman, ceo and president. He has been credited with successfully turning around the specialty chain, as well as rolling out Barneys Co-Op, its contemporary retail concept.

For the three months ended July 31, the latest quarterly results available, Barneys posted income of $891,000, or 6 cents a share, versus a loss of $2.1 million, or 15 cents, in the same year-ago quarter. Earnings before interest, taxes, depreciation and amortization skyrocketed 94.3 percent to $9.3 million compared with $4.8 million last year. Sales rose 14.9 percent to $102 million from $88.7 million, while same-store sales gained 13.8 percent.

Strategic buyers are generally preferred by sellers over financial buyers, particularly since they tend to be more willing to fork over the dough. Financial buyers, always on the lookout for a value deal, prefer to buy assets at rock-bottom prices.

Barneys’ asking price of around $400 million includes $90 million in long-term debt. While Tahari reportedly bid close to asking, financial buyers reportedly were looking more in the $350 million range.

— With contributions from David Moin and Lisa Lockwood

BARNEY’S THROUGH THE DECADES

1923: Barney Pressman hangs his shingle.

1950: Barneys’ 150 tailors are making about 80,000 suits a year, selling more suits than any other store in the world.

1970: Barneys opens its International House.

1975: Barney Pressman retires, leaving control to his son, Fred, who begins taking the company in new directions.

1975: Fred Pressman starts introducing European designers, such as Giorgio Armani.

1976: Barneys begins introducing upscale women’s clothing at its stores.

1986: Barneys opens its first store devoted exclusively to women’s.

1991: Founder Barney Pressman dies at age 96 on Aug. 26.

1996: Barneys files for Chapter 11 bankruptcy protection.

1996: Fred Pressman dies on Jan. 14.

1999: Company exits bankruptcy in January under new ownership by investment firms Bay Harbour Management and Whippoorwill Associates.

June 2004: Barneys retains Peter J. Solomon & Co. and Morgan Stanley to seek strategic alternatives, including a possible sale.

July 2004: Speculation surfaces of possible bidders, including Federated Department Stores, Neiman Marcus Group, Galeries Lafayette and Dickson Concepts Ltd. Price tag: $350 million to $600 million.

September 2004: Bidding enters second round. “A financial player” is said to be in the running.

October 2004: Designer Elie Tahari said to be eyeing the retailer.

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