Diego Della Valle’s mushrooming investment in Saks Inc. might not be so passive after all.
A regulatory filing with the Securities and Exchange Commission Thursday said the chairman and chief executive officer of Tod’s SpA leapfrogged over the world’s richest man, Mexican billionaire Carlos Slim Helú, to become the luxe retailer’s biggest shareholder, with a 19.1 percent stake. It also indicated that he is at least considering greater engagement with — and possibly even membership on — Saks’ board. In the past, he’s characterized himself as an admiring supplier to the store and a rather casual investor just looking to make a buck or a euro, something he’s done exceedingly well since first investing in Saks’ stock last year.
Della Valle’s nearly 20 percent position is well above the 11.1 percent stake he declared just two days earlier. The lightning-quick move pushed him past Slim, who at last count owned 16.1 percent of the retailer.
Although his intentions with his investment remain unclear, Thursday’s SEC filing, in a marked change from previous submissions, did note that Della Valle was tracking the firm’s prospects and might “seek the views of, hold discussions with and respond to inquiries from representatives of the issuer, significant shareholders and other persons regarding the issuer’s affairs and potential strategies.”
It went on to say Della Valle “would consider seeking representation on the board of directors” if he becomes a “strategic and long-term” shareholder. He also reserved the right to change his plans.
Investors — and presumably there are still other people buying the stock — ate up the news and pushed the issue ahead 4.8 percent to $10.61, a two-year high and about six times the $1.70 it was selling for when Della Valle began buying in February 2009. He has spent $170.3 million on Saks’ shares and options, building a stake that, if fully exercised, was worth $325.2 million as of Thursday’s close.
As in the past, Della Valle made his investments through his personal investment vehicle.
The sudden jump in the size of his stake and the tone of his involvement hardly settled the question of just what the Italian entrepreneur wanted to do with his involvement. Like many of its suppliers, he has continued to laud the company’s management, including ceo Stephen I. Sadove and president and chief merchandising officer Ron Frasch. Neither Della Valle nor Sadove could be reached for comment Thursday.
“Diego thinks Saks is an attractive place to park his money,” said one source active in the retail M&A arena. “I doubt he’ll take it over. I don’t think he wants it. He wouldn’t be doing it this way. You don’t normally see someone taking over by creeping up and buying [in increments]. You come in and you take it. He doesn’t want to take on the risk.
“He’s got lots of money, and thinks Saks has a better future than buying T-bills,” the source continued. “He’s getting good media out of it, too. If he bought a basket of eight different stocks, no one would notice. I don’t think anybody wants Saks. It’s overvalued. It’s trading at a higher multiple than Nordstrom.”
Saks installed a poison pill in 2008 to fend off Slim’s advances, but dropped it a year later after altering the change-of-control threshold in its $500 million credit agreement to 40 percent from 20 percent. The facility would go into default if someone acquired more than 40 percent of the company. There were no borrowings under the finance package as of the end of July.
Della Valle’s most recent investments in Saks came in three parts. He bought 2.5 million shares of Saks for $27 million Tuesday. That same day he cut a $6.4 million deal with Italian banking firm Mediobanca, Banca di Credito Finanziario to acquire options to buy 8 million shares at $12.95 apiece. On Wednesday he laid down another $25 million for 2.3 million shares, giving him beneficial ownership of a total of 30.7 million shares, 8 million of which are call options that expire at the end of 2011.
Although it’s rebounded from the dark days of late 2008 and early 2009, Saks has struggled financially, turning in losses of $11.7 million over the last four quarters on revenues of $2.7 billion.
Still, investors have been keen on the company, which was among the first to react to the 2008 financial crisis by cutting prices dramatically. More recently, it has trimmed its door count, shuttering stores in Southampton, N.Y.; San Diego; Charleston, S.C., and Plano, Tex.
Saks has an EV/EBITDA — enterprise value divided by earnings before interest, taxes, depreciation and amortization — multiple of 10.8 times, well above Nordstrom Inc. at 7.6 times and Macy’s Inc. at 5.7 times. Even at its current multiple — and Della Valle would have to pay a premium if he wanted to take over the company outright — the stock is relatively pricy.
But investors have been willing to pay up for it, in part because of its brand recognition and valuable real estate, particularly the famed Fifth Avenue store.
Given Della Valle’s pedigree and international reputation, some experts have speculated that he might want to shift the company to a more international footing to take advantage of the growing luxury market outside the U.S.
A recent study from Bain & Co. estimated the personal luxury goods category would grow 10 percent in 2010, reaching 168 billion euros, or $234.7 billion at current exchange, partly driven by “a strong rebound in the confidence of luxury consumers” and “positive exchange rate effects.” While the U.S. has contributed to the rebound, with a projected 12 percent sales gain, the real action has been in Mainland China, where sales are trending up 30 percent.
Bain said Mainland China would become the third-largest luxury market in five years.
Broadening Saks’ geography has been on the mind of Slim, who is now the company’s second-largest shareholder. The retailer has a deal to open stores in Mexico through Grupo Sanborns, a subsidiary of the billionaire’s Grupo Carso business, which has broad interests in the retail, industrial and consumer segments.
On Thursday, Slim’s second licensed Saks unit opened in Mexico City. It’s a two-level, 82,500-square-foot store in Plaza Carso, a new mixed-use development in the affluent Polanco community. The first Saks licensed unit opened in the Santa Fe Shopping Center in Mexico City in November 2007.