Byline: Karyn Monget

NEW YORK — The bidding war is heating up for Frederick’s of Hollywood, a bastion of the specialty intimate apparel business.
The company has been on the block for a year and a deal was close to completion last month. But a bold new suitor — Veritas Capital Inc., a merchant banking and private equity investment firm here specializing in industrial and commercial acquisitions — emerged to make a last-minute bid of $7.75 a share for the Los Angeles-based lingerie retailer.
The cost of the acquisition of some 8.5 million outstanding shares would come to $65.9 million. The higher bids weren’t being reflected on Wall Street, though. Frederick’s of Hollywood stock closed Friday at 6 7/8, down 1/16, on the New York Stock Exchange.
As reported, Knightsbridge Capital Corp., Chicago, which signed a definitive merger agreement in June, hiked its offering price in late August to $6.90 a share from $6.14 a share. The deal was to have closed late last week, but a source close to the negotiations said Friday there “still were some unresolved issues.”
The hike in the Knightsbridge offer came after an unnamed financial group put in a bid of $7 a share, but after examining that offer, it was decided to go with Knightsbridge.
As for Veritas, its president, Robert B. McKeon, said in a phone interview Friday: “We are currently talking with Frederick’s board and attorneys. We made a bid late last week. We believe that Frederick’s has enormous brand-name equity and is a business with lots of potential for growth in both the catalog and retail businesses.
“We think there’s a tremendous amount of opportunity in the international marketplace as well, and we see a huge potential in Asia,” said McKeon, whose background includes Maybelline, where he served as chairman from 1990 to 1992, and president of Wasserstein Perella Management Partners Inc., a New York-based merchant fund, from 1988 to 1990.
“Intimate apparel is a huge market, and Frederick’s is the number-two player next to Victoria’s Secret. As with Maybelline, we want to repackage and remake Frederick’s, make it a better company,” McKeon said.
“We specialize in turnaround types of situations,” he said.
Asked if a bidding war was brewing, McKeon replied: “Well, I guess we sort of came in on it.”
Officials at Frederick’s of Hollywood could not be reached. A source close to the lingerie specialist said the company had had two board meetings Friday “and nothing has been approved yet.”
The board is waiting “to determine if the new bidder is credible and has the cash available,” the source said.
Knightsbridge executives could not be reached.
Frederick’s — known for its sexy, sometimes naughty, products and catalog presentations — began 50 years ago as a specialist in black lingerie, which was considered risque at the time. In more recent years, it has attempted to present a more mainstream image, while still keeping its saucy cachet.
The firm had a difficult year last year, but has been showing improvement this year. For the nine months ended May 31, it earned $3.5 million, or 40 cents a share, against $664,000, or 8 cents, a year earlier.
Sales gained 1.9 percent to $118.7 million from $116.5 million. In addition to its mail order division, the firm was operating 204 specialty stores in 39 states at the end of the third quarter.