A view of Belk's Dallas flagship.

Belk Inc. has been doing just fine on its own — making money, growing and getting more competitive in the digital arena and on the selling floors by advancing contemporary and activewear offerings.

But after 127 years as a family-controlled business, Belk said Monday that it agreed to sell 100 percent of the business to Sycamore Partners for $68 a share, representing an enterprise value of $3 billion. The announcement Monday morning confirmed WWD reports that Sycamore was pursuing Belk.

“You can never stay the same in retailing,” Tim Belk, the chief executive officer of Belk Stores Inc., told WWD. “The share price — it’s compelling. We spent a lot of time with shareholders and the board discussing this.

“I feel good. It’s been a long, thorough process,” he added. “We looked at two parallel processes — what value could we generate if we remained independent, and what value could be generated if someone else would come in. Sycamore presented a compelling offer. We feel very good about the price.”

Belk, with about 850 shareholders, is required to report its results publicly, but the stock has been traded over the counter, not on any public exchanges. The majority of the stock is owned by Belk family members.

Sources said while the $3 billion value seems low compared to Belk’s $4.1 billion in annual volume, the $68 a share price represents a significant premium over recent past share transactions between $50 and $60.

“This didn’t come from the shareholders. It didn’t come from the board,” said Belk, who is 60. “This came from Johnny [John R. Belk, president and chief operating officer and Tim’s brother] and me saying it would be healthy. Nobody was putting pressure on us. We were looking at what would be healthy for the company.”

He acknowledged that given Belk’s long history as family controlled and operated, the sale to Sycamore does raise some questions over how Belk’s future growth potential was viewed, but he reiterated, “We felt it was a good healthy process that we didn’t have to do.

“I’m investing in the new company and my brother is as well, but for all intents and purposes, Belk will be owned by Sycamore.”

He said that he will continue as ceo but his brother, who is 56, will work through the end of the year and then explore other opportunities. John will also continue to serve on the Belk board, and invest in the company. Belk said he would be considering internal and external candidates to succeed his brother.

“Sycamore really likes our position in the market — modern Southern style — and they feel we are differentiated from the competition,” Belk added. “They would like to see us go further with that position. They believe we can grow within our footprint and into contiguous markets.”

Belk, with 297 stores, owns about a quarter of its locations and saw sales inch up 1.8 percent to $4.11 billion last year, as investments in stores, e-commerce and infrastructure cut profits by 7.8 percent to $146.1 million.

Belk said the number-one priority is to grow omnichannel and digital capacities, and that currently 9 percent of the $4.1 billion Belk’s total business is in e-commerce, or about $370 million. “We see e-commerce growing into the mid-teens over the next several years. Digital is the fastest-growing business at Belk and we feel it will continue to be,” the ceo said.

“We are in a very healthy financial position. We have a rock-solid balance sheet,” Belk said. “The capital structure will be different, but I don’t see the level of investment changing. We shared with them our capital-spending plan and they are supportive of that.” Belk said his company has been generating all the funds it needed for growth. In each of the last two years, the retailer orchestrated $100 million in share buybacks, and last year paid about $40 million in dividends. “We don’t need to access outside funds.”

Stefan Kaluzny, managing director of Sycamore Partners, said, “We have great respect for Belk’s management team and associates, its deeply rooted brand, its footprint of stores and its growing online presence. Belk is exactly the kind of investment we look for: an outstanding brand with a proven success formula and the potential for further growth.”

Kaluzny was not available for comment Monday on whether any immediate financial, staff or strategic changes were contemplated for Belk. At the Charlotte, N.C., corporate offices, there are well over 1,000 employees.

One source said that Sycamore is “in it for the long haul” to grow Belk and not interested in quickly selling the business. Typically, private equity firms look to cash in on their investments in a five-to-seven-year period, but the time frame could be shorter or longer.

At Sycamore, which has more than $3.5 billion in capital under management, the stated strategy is “to partner with management teams to improve the operating profitability and strategic value of their businesses.” Sycamore’s investment portfolio currently includes Aéropostale Inc., Coldwater Creek Inc., EMP Merchandising, Hot Topic Inc., the Kasper Group, Kurt Geiger, MGF Sourcing, Nine West Holdings, Pathlight Capital, Talbots Inc. and Torrid.

The merger agreement was unanimously approved by Belk’s board but is subject to certain customary conditions, including the receipt of regulatory and stockholder approval. The deal is expected to be completed in the fourth quarter of this year.

Certain Belk stockholders, representing a majority of the voting power of Belk’s shares, have agreed to vote in favor of the transaction.

Last April, Belk said it hired Goldman Sachs & Co. as part of an open-ended strategic planning process that could involve the sale of the company. Belk also has King & Spalding LLP as legal adviser and Bank of America Merrill Lynch as financial adviser.

Since the 2008 recession, Tim and John Belk have created a culture of innovation and calculated risk-taking to rebrand and modernize the business and its image. When the company turned 125, Belk set a goal of attaining $6 billion in sales within five years and earnings growth of 10 percent a year, and that the company would invest $600 million over five years, from fiscal 2012 forward, on store remodels and expansions, new technology, branding and service. Texas has been a big expansion market for Belk, though markets contiguous to the company’s current geography are under consideration. One possibility is southern Florida where Belk has no stores, though that’s a crowded market.

In recent selling-floor changes, juniors departments have been renamed contemporary and given an edgier image with some remerchandising. In addition, contemporary and active areas are now side-by-side, to create stronger destinations. Ath-leisure is being “built out in men’s and women’s” and is earlier in its development, Belk noted.

In an interview two years ago, Tim Belk said, “We were afraid to take risks, we were clear about short-term goals, with the long-term we were weak.”

“We didn’t get very high marks for encouraging people to take risks,” said John Belk.

The firm was founded by William Henry Belk, Tim and John’s grandfather, when he opened his first store in Monroe, N.C. He called the store the “New York Racket,” and later changed the name to W.H. Belk and Bro. when Belk lured his brother, Dr. John Belk, away from the medical profession to partner with him in expanding the retail venture. They opened additional stores in Chester and Union, S.C., and Charlotte. More stores popped up in growing communities surrounding textile mills, and by getting local partners to invest in the business. No stores were closed during the Great Depression, and rapid expansion occurred, with 111 stores opening from 1933 to 1942.

From the 1950s to the 1980s, Belk evolved from bargain stores to upscale department stores and followed the population migration from downtowns to the suburbs by opening units in regional and neighborhood malls. Over the decades there were more than 130 partnerships established, leading to store names like Belk-Simpson, Gallant-Belk and Belk-Matthews. The business model was innovative and kept the store network connected to the Southern communities and their needs.

Ultimately, Belk consolidated its 112 separate corporations into a single company with the Belks believing a centralized structure could add strength and consistency to the brand. The company ended up with 700 to 800 shareholders and subject to Securities and Exchange Commission regulations. Executives feel the reporting requirements have given the public company financial discipline, while still free from Wall Street pressures.

While most regional retail nameplates have disappeared over the decades, Belk’s longevity is attributed to its investing for the long term, strong local ties with communities, management continuity and acquisitions of other regional chains. Belk acquired Leggett, Proffitt’s, McRae’s and Parisian in a buying spree from 1996 to 2006. For other standing regionals, such as Bon-Ton Stores Inc. and Boscov’s Inc., business has been tough.

 

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