POON NOT BACKING OFF ON BARNEYS BID
Byline: Vicki M. Young / With contributions from Josephine J. Bow, Hong Kong
NEW YORK — He’s been rejected by creditors. And Saks Fifth Avenue is apparently positioning itself to make a competing bid, with Isetan on its side. Nevertheless, Dickson Poon, chairman of Dickson Concepts Ltd., is still keen on acquiring Barneys New York — and thinks his offer is solid.
“We believe our offer is a fair offer that would allow the sellers — everybody involved — to ride the upside,” Poon said in an exclusive interview with WWD last Friday.
“Barneys fits into our global retailing strategy and is a unique opportunity,” he added.
Poon announced on Feb. 28 his $240 million offer for the upscale retailer, which has been operating under Chapter 11 since January 1996. That offer, way below the expected $350 million range, was promptly rejected by the creditors’ committee as too low, yet it’s still the only bid on the table and Barneys has not rejected it.
Last week, Barneys, with the agreement of the creditors’ committee, requested court approval to pay up to $10 million in expense and breakup fees to encourage higher and better offers from interested bidders. There is some speculation that Poon sought the breakup fee and wanted to accelerate the bidding process.
When he announced his bid for Barneys, Poon also said his company is reviewing other investment opportunities. Asked Friday if he would pull the Barneys offer after a certain time, he replied, “Obviously, there is a time frame involved, but I am not prepared to comment further.”
In addition to the cash component of his Barneys bid, Poon is offering a minority interest for Barneys creditors in future non-U.S. store licensing income. The payment would arise when new store operations are opened.
Poon hasn’t publicly placed a value on potential Barneys overseas operations, but he suggested that the value is substantial, and that with his company’s “strong infrastructure throughout Asia, we should have the ability to further enhance that value.”
Meanwhile, Saks Holdings reportedly has been working with Isetan Co. Ltd. on a joint bid for Barneys. Neiman Marcus Group has also been mentioned as a possible bidder but is said to be less interested.
There have also been reports of at least two other potential bidders. Paris-based LVMH Moet Hennessy Louis Vuitton has consistently denied reports that it was interested, and Toronto-based Holt Renfrew previously acknowledged that it examined Barneys but prefers to focus on business in Canada.
Isetan Co. Ltd., Barneys’ former business partner, is locked in a dispute with Barneys over whether it is Barneys’ landlord or equity partner. Isetan has said it invested more than $600 million in financing Barneys’ expansion and is the landlord of Barneys’ three flagship stores, in Beverly Hills, Chicago and on Madison Avenue. Barneys recently lost a bid for a summary judgment that would have invalidated leases on the three stores.
Isetan operates two Barneys Japan stores through a licensing agreement with Barneys. That agreement is also a matter of contention, with Barneys claiming Isetan has breached the contract and that Barneys is owed royalties. However, Isetan says Barneys signed over an irrevocable right to the royalties.
Hirokazu Ishii, an analyst at Nomura Securities Research Center in Tokyo, speculated that Isetan has no strategy for Barneys in the U.S. Its main purpose right now is to keep its two Barneys Japan stores, Ishii said.
Ishii also said that company officials told him two weeks ago that if the bidders offer a good price, Isetan may decide to give up its U.S. property, provided Isetan could keep a regional license in Asia to maintain its Barneys Japan operations.
Joseph Wan, chief executive officer of Harvey Nichols, a subsidiary of Dickson Concepts, said Monday that Poon is “waiting to see what other possible bidders will do.” He said, “Since Dickson Concepts put in its bid [and no other bids have been forthcoming], it doesn’t make any sense to do anything but wait.”
Wan has been working with Barneys’ financial adviser, Blackstone Group, in structuring a possible investment in the retailer.
Dickson Concepts, a Hong Kong-based retailer and wholesaler, operates more than 270 stand-alone shops and in-store shops selling labels such as Escada and Ralph Lauren. Its two most important markets are Hong Kong and Taiwan.
Among the major brands that Dickson is licensed to sell in Asia are Bulgari, Polo Ralph Lauren, Charles Jourdan, Guy Laroche, Perry Ellis, State of Montana and Warner Bros. Studio Stores.
Dickson Concepts acquired Harvey Nichols in 1991. Nichols has two stores, in London and Leeds. Nichols and Polo Ralph Lauren are considered major breadwinners for Dickson, while analysts in Hong Kong said the Warner Bros. Studio Stores have attractive growth prospects.
Based on those three operations, and because Dickson Concepts is not leveraged, analysts in Hong Kong said the company would have no problem obtaining bank financing for a Barneys takeover.
“Affordability is not an issue, because the company could easily hike up its bank availability,” said Stephanie Wang, analyst at HSBC James Capel in Hong Kong. While there’s been speculation that Poon might come forth with a higher bid, Wang said she doesn’t think he would raise the bid substantially, and that he probably wouldn’t enter into a bidding war.
“The indications point to Dickson Poon having a dollar figure in mind, and if the price isn’t right, he’ll walk away,” Wang said.
Alan Wong, an analyst at WI Carr in Hong Kong, thinks Poon would come back with one more offer, a “real offer” after he sees what others will do.
Amit Thakar, an analyst who covers Harvey Nichols for ABN AMRO Hoare Govett in London, agreed: “Dickson Poon could easily walk away, because he’s not desperate for Barneys.”
“Dickson Concepts has a lot of cash on hand and will be able to pay a fair price for Barneys. Dickson Poon has a fair price in mind but won’t overbid,” added Thakar.
Indeed, analysts contacted in London and Hong Kong agree that Dickson Poon is savvy in valuing companies. “Poon won’t be foolish and pay silly,” Thakar said. “He has been very intelligent so far and will continue to be.”
As for pricing the offer at $240 million, Poon said: “We arrived at the terms and conditions after taking into account comments of our U.S. advisers, our due diligence performed with KPMG’s assistance and our views on Barneys.”
Elizabeth Gouw, an analyst at UBS Ltd. in Hong Kong, expressed some reservations about Dickson Concepts taking on the risks of turning Barneys around. She downgraded Dickson Concepts from a buy to a sell after Poon’s announcement of the Barneys offer.
Gouw said that even though Barneys offers enormous potential in the long run, the task of turning it around will exert significant downward pressure on Dickson Concepts’ earnings, short-term.
She also said future synergies between Barneys and Dickson Concepts are clearly possible, but “Barneys would be a big one to chew.”
Gouw explained that it took three years to turn around Harvey Nichols, a smaller operation. She also cautioned that Poon might be “taking on too much,” with the expansion of its outlets in Asia and the plans for the recently acquired Seibu department store in Hong Kong.
Poon appears undaunted.
He said Barneys is a solid investment that can be turned around by his company. Even when taking into consideration the fiercely competitive retail environment in the U.S., Poon said, “That is not an important consideration. We are not speculators; we are in for the long term.”
He also said, “Although we are a Hong Kong-based company, our stated objective is to be a global leader. We have fully owned subsidiaries throughout Asia and Europe. In each subsidiary, we have a strong local management team covering every aspect of our activities.”
Speculation among retail analysts is that Joseph Wan is the leading candidate to head Barneys U.S. operations, should Poon succeed in buying Barneys. Raymond Lee, an executive director at Dickson Concepts who heads up the corporate finance section, is another rumored candidate.
Gouw, however, said that Lee is overseeing the restructuring of Seibu. Other analysts predict that he may be too busy with that operation to deal with Barneys.
Thakar said, “Joseph Wan would be the best news for Barneys.”
Thakar explained that it was with Wan’s direction that Harvey Nichols returned to profitability.
“Wan knows the business, and he knows how to cut through the retail jargon to look at it from the business end,” Thakar said.
Victoria Melendez, an analyst at Morgan Stanley in London, said that Wan has a reputation for being cost-conscious, and that he orchestrated a three-pronged strategy to maximize and modernize floor space, control stock and overhead and change the sales mix at Nichols.
“Wan has done a tremendous job at Harvey Nichols,” said Poon, though he declined to comment on whether Wan would head the Barneys team.
Wan said Monday that no decision has been made.
“We are still so far away from that goal [attaining Barneys],” Wan said.
He also denied a past report that he would receive a $15 million fee if the Barneys deal should go through. “That’s unfounded,” he said.
The role Barneys co-chairmen Gene and Bob Pressman might have in a Dickson Concepts-owned Barneys remains uncertain. Poon is believed to be the suitor of choice for the Pressmans, who would like to continue to play a key role in running the business founded in 1923 by their grandfather, Barney Pressman.
Poon declined to comment about the Pressmans, but there have been reports that Dickson’s bid includes a role for them. Poon would only say, “Both Gene and Bob have done a lot in building Barneys’ international reputation and there is no reservation that they have made very important contributions.”
Barneys currently has 13 full-standing stores and nine outlets in the U.S.