Japanese Firm Makes Bid for Saks Fifth Ave.
The prestigious Saks Fifth Avenue chain attracted a hefty buyout offer Thursday that, if successful, probably would be the biggest Japanese investment ever in a U.S. retailer.
But a spokesman for Saks’ owner, London-based BAT Industries, disclosed for the first time that the proposal is only one of “a number of quality bids” for the specialty fashion retailer.
Under the proposal disclosed Thursday, the top executives of Saks would team with Tobu Department Store Co. of Tokyo to purchase the 46-store chain. The plan would leave the door open for a European partner to help Saks expand there, as well as in Asia.
Terms of the proposal were not disclosed, but analysts estimated that Saks would bring about $1 billion.
“This is the premier quality retail chain in the United States, and they own some of the best retailing real estate on both coasts,” said Alan Millstein, publisher of Fashion Network Report. Saks owns nine stores in California, and its Beverly Hills store is second in size only to the chain’s flagship operation in Manhattan.
The BAT spokesman, Jim Fingeroth, would not give an assessment of the Tobu-Saks offer. He would say only that BAT is on track to sell the chain by the end of May. Although BAT did not disclose the names of other bidders, Ann Taylor Inc. Chairman Joseph Brooks and General Cinema Corp., parent of the Neiman Marcus Group, are among those that have expressed interest in Saks.
BAT put up for sale its retail divisions--which include Marshall Field’s, Breuners and Ivey’s, along with Saks--in September as part of an effort to thwart a $22-billion takeover bid by an investment group headed by Anglo-French financier Sir James Goldsmith.
That bid has been suspended while insurance regulators review the impact that the takeover would have on BAT’s Los Angeles-based insurance firm, Farmers Group, but Goldsmith is expected to revive the offer if he gains approval of the regulators.
Fingeroth said that strong offers have also been made for the company’s other U.S. retailing units, but he would not name any of the bidders.
Among the few details released about the Tobu-Saks offer was that it called for the chain’s current chairman, Melvin Jacobs, and his top executives to continue to run the company. A spokesman for the prospective buyers, Peter Rosenthal, said they have arranged for enough bank financing to complete the deal if it is approved by BAT.
It was not disclosed whether Tobu or Saks management would gain the controlling interest in the company. But analysts said that the Japanese retailer would have a strong, if not dominant, hand in the operation because it probably is responsible for bringing most of the cash and bank financing into the deal.
In a statement, Jacobs said he believes that the partnership with Tobu “will ensure management’s continued attention to serving the needs of the U.S. consumer while providing an opportunity to expand Saks into Asia. It is also our intention to forge a similar strategic alliance for Europe.”
The group said that it would proceed with the buyout even if a European partner is not found.
Retail industry analysts praised the plans by Saks’ management to push into overseas markets, noting that the Saks name has a special cachet among affluent shoppers worldwide.
“Their opportunity to take that franchise beyond the U.S. is tremendous,” said Michael Gould, who heads the Giorgio Beverly Hills fragrance firm and formerly was chief executive of the Robinson’s department store chain in Los Angeles.
In some respects, however, Saks and Tobu are unlikely partners. Kurt Barnard, publisher of the Retail Marketing Report, said Saks has established a unique image that appeals to customers looking for “elegant” fashions. It has forged ties with such leading designers as Bill Blass and Giorgio Armani.
Tobu is a lower-to-moderate range retailer and, despite having annual sales of more than $1 billion, is far from one of the biggest merchandisers in Japan, Barnard said. Last year, however, it acquired a stake in Gump’s, a U.S. luxury goods retailer.
Also, the Tobu department store chain is part of a larger conglomerate, known as the Tobu Group, which has more than $6 billion in annual revenues and over 30,000 employees.
In any case, analysts said that the proper combination of Tobu and Saks management could work out well. They added that, if this deal succeeds, Japanese buyers are likely to look more closely at the battered U.S. retailing industry, where numerous chains are either up for sale or in financial trouble.
Although Japanese investors have spent massive sums to buy U.S. real estate, banks and industrial companies, they generally have shied away from retailers out of concern that they lack the expertise to succeed with American shoppers. To date, the biggest Japanese investment in a U.S. retailer is believed to be Jusco Co.’s $325-million purchase of the Talbots women’s clothing chain in May, 1988.
“You really have to have a sense of the market,” explained Sam Nakagama, chairman of Nakagama & Wallace, an economic advisory firm in New York.
The Japanese, he said, “know they’re good at retailing at home, but they can’t be sure they’d do a good job here.”
However, some Japanese retailers have teamed up with such U.S. firms as Toys R Us and clothier Barneys New York to bring American merchandising expertise into their market.
Saks, founded in 1924 by New York retailers Horace Saks and Bernard Gimbel, employs 12,000 people nationwide. The chain, which was acquired by BAT in 1973, had 1989 sales of about $1.3 billion.
JAPANESE RETAIL DEALS
Barneys New York--Joint venture announced in January, 1989, between Barneys and Isetan Co., Japan’s sixth-largest department store chain. Isetan would make a minority investment in small, upscale clothing shops in U.S. malls and Barneys would make a similar investment to operate stores in Japan under the Barneys New York name.
Gump’s--Sold in June, 1989, by Maxwell Communication for $36.5 million in cash to GMP Acquisition Corp., a company formed by Tobu Department Store Co., a Tokyo-based retailer, and Charterhouse Group International, a New York-based investment group.
J. Press Inc.--A favorite clothier of Harvard and Yale graduates for more than 80 years, J. Press was purchased by Kashiyama U.S.A. Inc., a Japanese marketing and licensing company, for an undisclosed sum in October, 1986.
Southland Corp.--Sold 58 7-Eleven stores and related properties in Hawaii for over $75 million in cash to an affiliate of 7-Eleven Japan Co. in December, 1989.
Talbots--Purchased by Jusco Co., Japan’s fourth-largest supermarket chain, from General Mills for $325 million in cash in May, 1988.
Tiffany & Co.--Mitsukoshi, a Japanese department store group, increased its ownership to 13% from 3% in September, 1989. Mitsukoshi sells Tiffany merchandise through boutiques in its stores and through hotels and distributes Tiffany products in Hong Kong and Hawaii.
Toys R Us--Agreed to a joint venture with McDonald’s Co. (Japan), starting in 1991, to open giant discount toy stores in Japan adjacent to McDonald’s restaurants.
