BARNEYS BLASTS BACK: ISETAN’S MAKING IT UP
Byline: Rich Wilner
NEW YORK — The war of words between Barneys and Isetan continued unabated Wednesday, with the store profusely denying the Japanese conglomerate’s charges of fraud and claiming that Isetan has a hidden motive at work: ousting the Pressmans.
Barneys New York repudiated Isetan Co. Ltd.’s claim that the retailer fraudulently induced Isetan to loan it $180 million, and claimed Isetan concocted the charges not only to retain an ownership interest in three Barneys flagship buildings, but also to wrestle control of the chain from the Pressman family.
Reacting to Isetan’s accusations, made public in bankruptcy court papers Tuesday, a Barneys spokesman said Isetan orchestrated the fraud charges because its management did not like the partnership arrangement established by Isetan’s previous management team.
Isetan and Barneys inked a so-called “global partnership agreement,” where Isetan agreed to bankroll Barneys’ expansion, on March 8, 1989.
According to the Barneys spokesman, from that day, Tokyo-based Isetan knew that its investment would one day be converted into an equity stake.
A March 1994 agreement signed by Isetan and Barneys forces Isetan to give up ownership of the flagship buildings — in Chicago, Beverly Hills and on Madison Avenue — in exchange for an equity stake in Barneys ongoing businesses “of up to 49 percent,” a source close to the retailer claimed Wednesday.
The spokesman said that Barneys advisers later determined that the three buildings were worth a 27 percent piece of the Barneys pie.
“Isetan and its attorneys agreed to turn over the buildings, but now they don’t like the agreement so they are attempting to fabricate fraud charges as a way of backing out of the deal,” the Barneys source said.
Isetan attorneys did not return phone calls Wednesday seeking comment.
Barneys filed for Chapter 11 protection Jan. 10 in order to recast its partnership with Isetan. Barneys is looking to wipe out roughly $180 million in debt — the loans from Isetan — by converting them to the 27 percent equity stake.
Isetan claims the $180 million in loans — part of $587 million invested in Barneys by the Japanese department store giant since 1989 — were partly for loans and partly for title in the three flagship stores.
Barneys does not refute the fact that $180 million in loans were made, but claims Isetan management knew of and agreed to a deal that forced them to convert that debt into equity.
“Both the Pressmans and Isetan’s previous management know that a retailer like Barneys cannot survive with such high levels of debt,” said a source close to Barneys. “That is why there was the agreement to convert to equity.
Neither Robert Pressman nor his brother Gene, co-ceos, were available to comment.
The Barneys spokesman said the fraud charges made by Isetan in court, filed in response to Barneys’ charges that Isetan “unfairly” withdrew $50 million from the retailer, “are an absolute smoke screen.” As reported, Isetan claims Barneys provided a balance sheet showing a $19.5 million profit for the fiscal year ended July 31, 1993, when it actually lost money that year.
The Barneys spokesman refuted the charge and said the retailer “has been and is profitable.”
“There is only one version of the balance sheet, the correct one, and Isetan saw it, reviewed it and lent Barneys money based on its accuracy,” the spokesman said. “Now, in order to back out of its agreement to swap the buildings for a 27 percent stake, they are alleging fraud.”
The spokesman said Isetan attorneys and management could be concocting the loss by misapplying certain line items of the special purpose balance statement. For example, Isetan could be applying worldwide operating expenses to domestic operating profit, thereby wrongly converting a bottom line profit into a loss, the spokesman contended.
“Barneys financial statements will prove to the court that Isetan’s statements of fraud are false and misleading,” he said.
The latest charges between Barneys and Isetan come just days before the two sides are scheduled to meet with a court-appointed mediator in an attempt to settle a rent dispute.
Isetan claims Barneys should continue to pay rent while the issue of who owns the buildings is litigated. Barneys, claiming that Isetan’s deal to swap the buildings for the equity stake is valid and that it is likely to prevail in court, maintains that it shouldn’t have to make the roughly $2-million-a-month rent payments.
The two sides are scheduled to meet April 1.
Meanwhile, Barneys received bankruptcy court approval for a 20-day extension of the time it has to file financial statements with the court.The retailer now has until April 15 to file the operating statements that will give a first-ever glimpse into the nuts and bolts numbers of the private concern. Barneys said in court papers that it needed the extra time because it has “not been able to commit the resources necessary to complete and assemble all of the requisite financial data.” — Fairchild News Service