Saks Fifth Avenue flagship store in New York.

Authentic Brands Group is inching closer to becoming the lead bidder for Barneys New York, and it has found a potential partner in Hudson’s Bay Co.

Responding to a report Monday that ABG and HBC are teaming on a nearly $270 million offer for Barneys, a source close to the negotiations said: “It is a true statement. Richard Baker’s whole strategy is that he wants to own luxury retail.” Richard Baker is the chairman/governor of Hudson’s Bay Co., which owns Saks Fifth Avenue and Lord & Taylor in addition to Hudson’s Bay in Canada.

Sources stressed that HBC would not be involved in actually buying Barneys. Instead, ABG’s plan contemplates purchasing some or all of the Barneys assets and licensing the name, according to a source familiar with the case. Sources said ABG, which received an $875 million investment in August from BlackRock’s Long Term Private Capital division, is expected to award the license to HBC, which could open Barneys departments within Saks Fifth Avenue stores.

Under the plan, ABG could license the brand name out internationally as well, according to the source. ABG would also reportedly try to keep the Barneys flagships in Los Angeles and New York City open if a deal can be made with the landlords of those properties, the Ashkenazys. If any Barneys stores do stay open, it’s unclear whether they would be operated by HBC or ABG. Barneys’ debtor-in-possession lenders are working with ABG, although the extent of their role is unclear, according to a person familiar with the case.

“After a marathon, all weekend long negotiation, at the last minute Saks Fifth Avenue and Authentic Brands made a deal,” a source told WWD. “Authentic Brands is buying Barneys and Saks is buying the licensing rights for the brand.”

Representatives for Barneys and ABG and Saks officials declined to comment. HBC and its DIP lenders, Brigade Capital Management LP and B. Riley Financial Inc., could not be reached for comment Monday. An attorney for Barneys’ Madison Avenue and Beverly Hills landlord also did not respond to requests for comment.

The Wall Street Journal was first to report Monday that ABG was leading the race for Barneys, as well as HBC”s involvement.

A hearing in the case is scheduled for today in Poughkeepsie, N.Y., before New York bankruptcy Judge Cecelia Morris.

Barneys’ inability to negotiate a rent reduction at its Madison Avenue store was the proverbial straw that broke the camel’s back and sent the company into bankruptcy.

“Look at Topshop within Nordstrom and Hudson’s Bay in Canada,” the source said of the possibility of opening Barneys shops within Saks. “They’re both very successful businesses.”

Barneys at Saks shops would allow the latter retailer to attract a “more-edgy, Millennial customer,” the source contended, adding that while there is significant overlap in the vendor mix between the two stores, the product mix is different.

In addition to Barneys at Saks shops, ABG would also license the Barneys name into a number of different categories of premium goods such as footwear, ath-leisure and fragrance, sources said. It would also seek partners in foreign countries to operate Barneys stores internationally. That would include the Middle East and China. Barneys has had a business under license in Japan for decades.

If ABG’s bid is ultimately accepted, it would position the branding strategy specialist as the stalking horse, meaning that any other interested parties would have to submit a higher offer to acquire the bankrupt retailer. An auction for the bids is scheduled for Oct. 24.

Another interested bidder has been Project and Liberty Fairs founder Sam Ben-Avraham, who has reportedly been working with a group of retail and fashion industry executives to secure funding for a $220 million bid for Barneys. The source said Ben-Avraham is having trouble raising the money and appears to be out of the running.

“I don’t think Sam will be putting in a bid,” the source said. “Anyone who submits a bid has to have $50 million in their jeans pocket and be prepared to come up with the balance on the 24th. This is a real auction and requires a hard deposit.”

While ABG is a brand operator, it also operates nearly 5,000 stores around the world for its owned brands that include Marilyn Monroe, Neal Lane, Hickey Freeman, Frye, Nine West and Vince Camuto. It has a separate division called Authentic Retail Co. that is a partnership with Simon Property Group and Brookfield, that operates Aéropostale and Nautica retail.

“Barneys is a great brand but the model needs to be reinvented,” the source said. “ABG’s strategy has always been to get rid of the bad and keep the good. But Barneys has $60 million in overhead. The stores can make money if they get rent relief but that doesn’t work when you have those kind of expenses.”

It’s likely that if Saks decided to maintain the Barneys flagship on Madison Avenue, it would have to be in a downsized format with a reduced rent. The store lacks traffic and would be more productive with fewer floors.

Adding a Barneys shop to Saks flagship in New York seems incongruous with what’s been going on at that store. It is in the final stages of a comprehensive transformation, said to be costing somewhat over the original $250 million budget, so putting a Barneys shop of any significant presence would likely be disruptive to the project and its intent on casting a strong Saks identity.

The source said, “Barneys won’t dilute Saks. It’s about Saks providing a place for Barneys shoppers.”

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