NEW YORK — After an aborted auction of the entire company last year, Jones Apparel Group may be contemplating plan B: a breakup.
Financial and industry sources said tentative “feelers” have been extended to various parties regarding their interest in the Nine West group and the upscale specialty chain Barneys New York. Jones’ chief financial officer Efthimio Sotos declined comment Wednesday. No bank appears to have been appointed to advise the company on any possible breakup.
Should Jones be successful in breaking up the firm, the sum of its parts could put a valuation on its share price around $40 or higher. That, in part, would vindicate what Peter Boneparth, chief executive officer of Jones, and the Jones board have said all along: The company has intrinsic value that hadn’t yet been realized. The $5 billion company had been looking for a purchase price of at least $36 a share. Bain Capital, the only remaining bidder, which walked away from the deal last August, was eyeing $28 a share.
Jones shares closed Wednesday at $33.51 on the New York Stock Exchange, compared with $33.80 the day before.
Jones’ properties include Nine West Group Inc., which it bought for $1.4 billion in June 1999 when the apparel vendor was under the leadership of Sidney Kimmel, who remains as chairman. Nine West’s stable of brands includes Nine West, Enzo Angiolini, Bandolino, Easy Spirit and Pappagallo. Financial sources pegged the value of Nine West at $1.8 billion to $1.9 billion. Likely suitors, said several industry chief executives and financial sources, include Brown Shoe Co. Inc. and Vince Camuto of the Camuto Group, who co-founded the footwear firm in 1977.
The Nine West group does about $1 billion in annual wholesale volume and $900 million in retail sales. In addition to footwear, it has a sizable accessories component. In 1999, Nine West was a hot brand, generating $1.92 billion in revenues and $40.4 million in profits.
Barneys New York, which Jones bought in December 2004 for $400 million, is estimated to be worth around $800 million to $900 million, financial sources said. Both financial sources and chief executives at industry firms told WWD that several private equity firms are eyeing Barneys, including Texas Pacific Group. A private equity source on Wednesday confirmed there has been interest by TPG since last year, when Jones put the entire company up for sale, and that the interest continues to this day.
TPG is no stranger to retail and apparel. It owns J. Crew and Bally and in 2005 teamed with Warburg Pincus to buy Neiman Marcus Group. TPG last year also was involved in one of the most successful retail initial public offerings in history with the stock market flotation of J. Crew, and last week the company revealed plans to cut its stake in the specialty store further to 24 percent from 36 percent by selling 7.5 million shares.
Boneparth was the force behind the acquisition of Barneys New York, predicting at the time of the deal that the retailer could become a $1 billion company. He joined Jones in June 2001 following the acquisition of McNaughton Apparel Group, where he was ceo. He later became ceo of Jones.
Industry executives noted that Barneys New York would be a strategic fit for Neiman Marcus Group. The two don’t compete for the same clientele and having Howard Socol, ceo of Barneys, on board would give TPG a natural successor to Burt Tansky, ceo of NMG, whenever he chooses to step down.
Currently, Barneys is considered the crown jewel of the assets under the Jones umbrella. The luxury market is still doing well, and there is the potential for expansion in both the Barneys flagships and its contemporary Co-op concept.
Financial sources said late last year that TPG was considering the possibility of an initial public offering for Neiman Marcus, perhaps in the next year or so, which would have been a quicker exit strategy than expected. A purchase of Barneys might delay that by a short period, those sources said, but could actually enhance the “investment story” as growth could come from multiple fronts instead of just the expansion of the Neiman Marcus name.
“Splitting up the company certainly is an alternative that Jones should be looking at,” said Richard Kestenbaum, partner at investment banking firm Triangle Capital.
The banker said a breakup would give shareholders the potential opportunity to increase the value of their holdings if separate shares were to be issued in Barneys or Nine West. It also would allow the remaining entity to grow by doing smaller acquisitions. Boneparth has in the past said that in order to “move the needle,” Jones has to do deals of significant size.
“Jones is so big that it is hard to make an impression on the market, and organic growth has not panned out,” Kestenbaum said.
It is still unclear, however, whether Jones would keep the core moderate business intact and maintain the public company as a smaller firm or possibly also sell off some of its moderate brands.
The ceo of a sportswear firm said on Wednesday that Gloria Vanderbilt and the core Jones New York are the brands that competitors would probably be interested in since they are the ones that are doing well. Whether Anne Klein, a higher-end contemporary line currently being relaunched with a designer line created by Ruben and Isabel Toledo, might be put up for sale would depend on “what Jones wants to be in the future,” said this ceo.
Wholesale better apparel brands owned by Jones, in addition to the core Jones label and Anne Klein, include Albert Nipon, Evan-Picone Dress and Le Suit. Wholesale moderate apparel collections include certain Jones-branded lines: Norton McNaughton, Gloria Vanderbilt, Evan-Picone, Energie, Erika, l.e.i., Jeanstar, Pappagallo and Rena Rowan.
If Jones chooses to sell a brand such as Jones New York or Gloria Vanderbilt, some apparel executives expect brand management firms such as Iconix and NexCen Brands to jump into the fray.
“Those two are brands that have tremendous licensing opportunities and fit the model of Iconix and NexCen,” said one industry executive.
NexCen said in December that it was buying design house Bill Blass, in part because it expects to leverage off the infrastructure of Blass for future apparel acquisitions. NexCen already owns The Athlete’s Foot and is currently looking at a food franchise to complete its goal of a three-pronged vertical business model, according to a source close to the company.
Iconix also has been busy, late last year snapping up Ocean Pacific from Warnaco and London Fog, which had been in bankruptcy proceedings. Earlier in 2006, Iconix completed deals for Mossimo and Mudd Jeans. An investment banker said Iconix had been in negotiations for Fila, but a deal for the company closed on Friday, with the South Korean licensee, Yoon-Soo (Gene) Yoon, beating out Iconix (see related story, this page).