Federated is seeking $1.2 billion for the Lord & Taylor operation.

M&A deal-making is hot, with bidding for Jones Apparel near completion, first bids for L&T due today and Foot Locker now believed in play.

NEW YORK — The mergers and acquisitions deal-making is kicking into a higher gear.

Despite the downturn in the stock market and worries over inflation, hedge funds and private equity players remain awash with cash and are hungry to make acquisitions. Among deals in fashion and retail in the works:

This story first appeared in the May 19, 2006 issue of WWD. Subscribe Today.

  • Sources say the bidding for Jones Apparel Group is drawing to a close with Bain Capital, Texas Pacific Group and The Blackstone Group leading the race to acquire the $5 billion apparel firm.
  • The initial round of bids for Lord & Taylor are due today, and sources say L&T owner Federated Department Stores Inc. could see an offer higher than its $1.2 billion asking price.
  • Foot Locker Inc. is now believed to be in play, and financial sources say Thomas H. Lee Partners and Apollo Management are circling the company.
  • Finally, Hampshire Group Ltd. said Thursday that it inked an agreement to acquire Marisa Christina for $4.8 million.
  • Foot Locker Inc. is now believed to be in play, and financial sources say Thomas H. Lee Partners and Apollo Management are circling the company.
  • Finally, Hampshire Group Ltd. said Thursday that it inked an agreement to acquire Marisa Christina for $4.8 million.

Regarding Jones Apparel, financial sources, such as investment banking contacts, said they expect a deal for the company could be completed in five to six weeks. One source said the apparel firm and its bankers are confident Jones would be sold for around the $38-a-share range, but financial sources connected with the private equity bidders believe that $35 to $36 a share is the more appropriate valuation. Shares of Jones closed at $32.82, down $1.71, in trading Thursday on the New York Stock Exchange.

About three weeks ago, Goldman Sachs, the banker for Jones, received seven or eight first-round bids from private equity firms, sources said. Over the last two weeks, meetings were held between Jones and the firms picked to participate in the second round of discussions. It wasn’t known at press time how many bidders were invited to participate in those discussions.

Second-round bids are due by next Friday, investment banking sources said. Financial sources said only three or four private equity firms are expected to place second-round bids.

Cerberus Capital Management, which, in late March, was believed to have the inside track, is now said to be out of the picture. Bain Capital is said to be still in the running for Jones, according to a contact close to the company. Bear Stearns Merchant Banking is believed to be involved in financing the deal for one of the potential acquirers, although it could not be learned which one. Private equity player The Blackstone Group also is believed to be a likely second-round bidder, said a source close to the firm. Another possible second-round bidder is Texas Pacific Group, which last year, along with Warburg Pincus, bought Neiman Marcus Group.

Spokesmen for the private equity firms either declined comment Thursday or could not provide comment because principals at the firms could not be reached.

Jones is holding its annual meeting on Wednesday at 10 a.m. here, at the J.P. Morgan Chase Conference Center, according to the company’s proxy statement on file with the Securities and Exchange Commission. The proxy also listed chairman Peter Boneparth’s annual salary at $2.5 million in 2005, the same as in 2004. However, his cash incentive bonus dropped to $1.2 million, representing a 40 percent reduction, from the $2 million awarded a year earlier.

On the Lord & Taylor front, sources said Federated’s bankers will be busy sifting through offers over the weekend as initial bids are due today. Sources said around 40 memorandums, or fact sheets, were sent to prospective bidders. As first reported in WWD, Federated is seeking $1.2 billion for the Lord & Taylor operation. Federated’s 10-page memo listed the Fifth Avenue flagship at 38th Street as having a valuation of $350 million. At least one financial source told WWD that his firm is planning on making a bid that could top the $1.2 billion asking price.

Sources familiar with the bidding said at least two private equity groups and one liquidator are expected to participate in the initial round. Texas Pacific and Warburg are joining forces again in a bid for Lord & Taylor, sources said. Also expected to make a joint bid are Cerberus and Sun Capital Partners, according to investment bankers specializing in the retail and apparel industries. The two were part of an investment consortium, along with Lubert-Adler/Klaff and Partners LP, that bought Mervyns from Target Corp. for $1.2 billion. Gordon Brothers, a financial firm known more for its liquidation work than for its merchant banking operation, also has been eyeing Lord & Taylor and is believed to be fashioning a bid.

Federated has said it expects to complete the sale process by yearend. Executives for TPG, Cerberus and Gordon Brothers could not be reached for comment.

Meanwhile, the latest entry into the mergers party is Foot Locker Inc. The retailer of athletic footwear and apparel has been the target of intense scrutiny by several private equity firms. Sources close to Foot Locker said Thomas H. Lee Partners and Apollo Management are in pursuit. Spokesmen for the private equity firms did not return phone calls for comment by press time. Foot Locker chairman Matthew Serra could not be reached for comment.

Investment bankers and financial sources said the activity has been centered around Foot Locker as a leveraged buyout candidate for the past six to eight weeks. They believe an LBO is possible at $30 a share.

They also said it wasn’t until this week that a one-page memorandum has been circulating among potential bidders. Shares of Foot Locker closed Thursday at $22.14, down 72 cents, in trading on the Big Board.

And while most of the M&A activity involves private equity money, the strategic players are still in the game where appropriate. On Thursday, Hampshire Group Ltd. said it inked an agreement to acquire Marisa Christina for $4.8 million. Following the acquisition, which is expected to be completed before the end of May, Marisa Christina will be a wholly owned subsidiary of the Hampshire Group. Shareholders will receive 65 cents a share, less a pro rata portion representing transaction costs.

“The acquisition of Marisa Christina by Hampshire gives the [women’s apparel firm] a good strategic partner that can align the business with the David Brooks operation that Hampshire already owns, which will also provide savings in costs that will allow the Marisa Christina business to be more profitable,” said Richard Kestenbaum, partner at investment banking firm Triangle Capital, which represented Marisa Christina in the transaction.

Founded in 1971 and known for its knitwear, Marisa Christina has evolved into a lifestyle apparel collection that is sold in more than 700 specialty stores and upscale department stores.