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NEW YORK — Investor pressure is building for Saks Inc. to make a move.
And Wall Street reacted on Friday by sending shares of the retailer down 9.3 percent. Investors were disappointed that one potential bidder, Cerberus Capital Management, decided not to bid, and that Saks Inc. appears to be leaning towards the sale of just its northern department store group, and not also selling its Saks Fifth Avenue division.
A week ago Monday, Saks received bids for its northern group, which could have opened the door for anyone interested in buying the whole company.
But instead of premium offers well above current stock valuations such as what Neiman Marcus Group and May Department Stores garnered in their acquisitions by Texas Pacific Group/Pincus Warburg and Federated Department Stores, respectively, Saks was sniffed at and told by Cerberus that it was just too pricy. On Friday, WWD reported first that Cerberus was out of the picture. Financial sources had said last week that the price tag for Saks Inc. reached $29 a share.
On Thursday, sources close to the company said Saks hoped to make a decision on selling its assets by last weekend. Meanwhile, private equity, mutual and hedge funds with stakes in Saks mulled over a valuation for the retailer. Several hedge funds were expecting the entire retailer to be sold to a strategic bidder in partnership with a financial player. The lead contender was Bon-Ton Stores, which was said to be partnering with Cerberus.
Other private equity firms, such as TPG, The Blackstone Group, Bain Capital, Apax Partners, as well as Jones Apparel Group, were said to be examining Saks Inc., either its northern group or SFA. Shareholders had hoped there would be strong interest. Then a sabot fell into the works.
When news reached investors Friday morning that Cerberus backed out and other potential bidders were more interested in pieces of Saks Inc. rather than the whole company, Wall Street went into a selling frenzy. Shares of Saks dropped $2.23 to $21.82. Trading volume was 8.8 million, well above the stock’s three-month average volume of 1.7 million.
Some hedge fund managers as well as sell-side analysts said they were surprised by the stock sell-off. They speculated that it was due to Cerberus dropping out.
A source close to the bidding process said it was likely that bankers were going through the bids and comparing them.
Meanwhile, shareholders regrouped after the bottom fell out on the stock. Several, including a few portfolio managers, said they would be pushing for a sale of the entire Saks Inc. enterprise, even if it were piecemeal. They have the power to do it.
According to filings with the Securities and Exchange Commission, 72 percent of Saks Inc. is held by institutional and mutual fund holders, and they also hold 77 percent of the float. The top institutional holders include: FMR Corp. (better known as Fidelity Management) with 4.19 percent of the outstanding shares; Deutsche Bank Aktiengesellschaft with 4.06; and Blackrock Inc., with 3.11 percent.
The biggest institutional holder is Southeastern Asset Management Inc. with 18.3 percent of the shares outstanding. Southeastern describes itself as an “independent, employee owned” investment advisory firm. It has over $30 billion in managed assets.
Top mutual fund holders of Saks Inc. include: Fidelity, Janus Mid Cap Value Fund and Variable Insurance Products FD-Growth Portfolio.
If there’s any downside to the power of these shareholders, it is their size: there are 186 institutions holding shares of Saks Inc. Still, it could take only a few of the major holders working together to press management of the retailer into action. But for now, it seems, the shareholders just have to bite their nails, or least vent their frustration.
One portfolio manager said he’s “going to call Saks and complain about how management hasn’t done a thing in turning around Saks Fifth Avenue.”
SFA’s same-store sales have been mixed over the past three months. In May, June and July, comps showed gains of 0.8, 7 and 4.1 percent, respectively.
An institutional investor, who is planning to call Saks, said in disgust that he doubted his call would make any difference since he didn’t know who was really making the decisions at the retailer. Previously, a spokeswoman at Saks said R. Brad Martin, Saks Inc. chairman, was actively running the company. It was unclear over the weekend if Martin and the board were discussing the bids.
Earlier in the week, Saks said it completed its internal investigation of improper markdowns and would repay vendors more than $48 million. Also, the company announced the resignation of George Jones, president and chief executive officer of the department store group.
These two events convinced some shareholders that the entire company would be sold. People knowledgeable about the situation said Bon-Ton is still in the running for at least the department store group, which consists of Carson Pirie Scott, Bergner’s, Younker’s and Boston Store. Club Libby Lu, the small specialty chain for girls, is also on the auction block and said to be attracting interest from Too Inc., Claire’s and Build-a-Bear.
In July, Saks sold its southern department store group — Proffitt’s and McRae’s — to Belk Inc. for more than $620 million.
So what happens with Bon-Ton? A shareholder with a large holding in the retailer said he couldn’t think of any private equity firm other than Cerberus that would be interested in the northern department store group.
In the meantime, factoring firms, which handle the accounts receivables of vendors selling to retailers, said orders have been approved through the end of September for suppliers shipping to Saks Inc.
However, future orders depend on whether Saks makes good on its promise to file certain financial information with the SEC, which is investigating its markdown policies along with federal prosecutors. In announcing the conclusion of its internal investigation last Wednesday, Saks reiterated that it plans to file those statements within the next few weeks.