NEW YORK — Jones Apparel Group might have an alternative plan for Barneys New York up its sleeve.

Just when it seemed private equity might be swooping in to buy the upscale specialty retailer, an option being discussed and considered seriously by Jones executives is an initial public offering of Barneys.

Sources said Jones hasn’t decided yet what to do — and no banker has been hired — but added Barneys chairman, Howard Socol, is said to be “keen” on the idea.

A Jones spokeswoman said, “Jones Apparel Group is focused on executing the strategic plans for all of our businesses, and building shareholder value by doing so. We do not comment on rumors.”

Jones chief executive officer Peter Boneparth, not always the favorite of Wall Street analysts, “doesn’t get enough credit,” said an analyst, who requested anonymity, on Tuesday. The analyst pointed out that “buying Barneys for nearly $400 million in 2004 was a brilliant move. It now does at least $800 million to $900 million in annual volume. That’s a tremendous amount of shareholder value created in two years.”

The analyst called the prospect of a Barneys IPO “brilliant,” adding that, “Peter has stock options that will vest in about a month, on top of the shares he already owns. That’s an incentive to do an IPO.

“Besides, if the company does an IPO, they don’t have to sell any of their businesses. And they get the upside of a Barneys IPO, value added to the Jones shares plus they get to retain control of the business,” the analyst said, predicting investors in a tax-free spin-off would perhaps get one share of Barneys for every Jones share owned.

Another financial source said, “There’s been talk about an IPO, which is a good option to consider. The company is running three businesses and not really getting any value for the businesses.”

In addition to Barneys, Jones owns Nine West and such brands as Jones New York and Anne Klein.

Investment bankers and industry sources said last week that an IPO of Barneys would be a good move to unlock value in the retailer’s assets. One former investment banker said luxury firms are still commanding good peer multiples because of the uniqueness of the assets. So, while a retailer might sell for between 1.2 and 1.6 times, a luxury retailer could get between 1.5 to 1.8 times sales. Barneys, this person said, could easily get a $2 billion valuation as a publicly traded company.

This story first appeared in the January 31, 2007 issue of WWD. Subscribe Today.

“Jones could do a tax-efficient spin-off, and still retain control of Barneys, but would also get the imputed benefit of the $2 billion into its stock price,” this source said.

An IPO of Barneys could take Jones’ share valuation up to $45.90, according to sources familiar with the company’s operations. That would presume a valuation of Barneys of $1.5 billion; the Anne Klein business at $800 million; the Nine West business at $1.7 billion; its moderate business at $1 billion, or at a discount to 0.8 times sales, and $1 billion for its better business, excluding Anne Klein. The total value of the businesses is $5.05 billion, or $6 billion less $950 million in debt, and when divided by 110 million shares outstanding, the per share target is $45.90, sources said.

But that doesn’t mean Jones isn’t considering all options for Barneys — including an outright sale. An apparel executive said, “There are many private equity firms that are interested in Barneys and have expressed that interest to Jones.”

A financial source said private equity firms are probably willing to pay around $1.2 billion for the specialty chain, but noted that Jones “could do better and get a higher valuation from an IPO.”

To be sure, the idea of an IPO for Barneys always has been a possibility for the retailer — even when the third generation of Pressman family members were forced to take it into bankruptcy proceedings in 1996. Grandfather Barney Pressman founded the firm in 1923, and grandsons Gene and Bob were co-chairmen of the retailer at the time of the bankruptcy filing.

In 1997, when financial players were signing confidentiality agreements to look at the books and decide whether to buy the bankrupt retailer, Gene Pressman held steadfast to a bullish view of the company. In June 1997, following the announcement that Barneys would shutter its original 17th Street store, Pressman was said to be telling employees of plans to take Barneys public in a few years.

Barneys was eventually bought out of bankruptcy in 1999 by two investor funds, Whippoorwill Associates and Bay Harbour Management, which combined owned 70 percent of the retailer. Principals David Strumwasser of Whippoorwill and Douglas Teitelbaum of Bay Harbour were initially thought to be planning a quick sale of Barneys since financial players typically like to exit an investment as quickly as possible. But in a 1999 interview, the two principals shot down that idea, stating that they had a long-term vision for Barneys that included a possible “public offering” down the road.

Instead, the two financial buyers sold Barneys in 2004 to Jones for $397.3 million. Last March, when Jones put itself up for auction, investment bankers said the Barneys component of the group easily could be valued at $600 million to $700 million. The company pulled itself off the market in July, stating the best alternative to maximize shareholder value was to continue operating the group as a whole and execute its business plan. Since then, Barneys is said to be doing an annual volume of closer to $800 million.

One problem for Jones is how it goes about maximizing shareholder value. Jones, like many apparel vendors, had a difficult 2006, even though it was in the process of stabilizing its moderates businesses when the company reported third-quarter results late last year. The holiday period, industry sources said, was not kind to the apparel giant. However, all vendors faced the same grim shopping environment of warm weather, lack of consumer interest and no new hot fashion must-have for the season.

In the case of Jones, its real bright spot is Barneys, which posted double-digit comps in the third quarter on top of same-store sales gains a year earlier. The shop for the well-heeled consumer has more than doubled in size since Jones became its parent in 2004. Barneys, under the leadership of Socol, is planning to hit its goal of $1 billion in sales through opening more flagships and smaller Co-op contemporary units. Jones upped its capital expenditures budget for Barneys last year to more than $60 million from $18 million in 2005, according to financial sources. The increase in capital expenditure was used to upgrade a distribution center and open new stores, those sources said.

Shares of Jones on Tuesday closed at $33.71 on the Big Board, trading off by 2.94 percent following the company’s announcement on Monday that it would take a pretax, noncash charge of $491.4 million for the impairment of goodwill and trademarks primarily in the company’s wholesale moderate apparel segment. About 1.8 million shares changed hands, compared with a three-month average volume of 693,910 shares.

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