Mideast Investors Will Pay $1.5 Billion for Saks : Retailers: The new owners promise an aggressive program of expansion.

Trading cash for cachet, a Middle Eastern investment group announced Wednesday that it has agreed to buy the prestigious Saks Fifth Avenue fashion chain for a hefty $1.5 billion from its British owners.

The surprise winning bid by Investcorp, a firm founded by Persian Gulf investors in 1982, was $200 million to $300 million higher than the top price that industry analysts had predicted. It prevailed over several competing offers, including a bid from a partnership of Saks management and Japanese investors.

Analysts said that Investcorp would make the deal pay off by expanding Saks aggressively, particularly in Europe, the Far East and possibly Canada. Manhattan-based Saks already has a strong following among wealthy foreign tourists. All of its 45 shops are in the United States, including an outlet in Beverly Hills that is its second-largest store.

“We’re an international firm and we think we can help Saks expand internationally,” Paul Soldatos, a member of Investcorp’s management committee who worked on the deal, said in an interview.

Saks, he added, “is an internationally recognized trade name. It’s a property that comes around once in a lifetime.”

Kurt Barnard, publisher of a retailing newsletter, said, “Investcorp really wanted Saks Fifth Avenue, and it was willing to pay a premium for it.”

For Saks’ current owner, Britain’s BAT Industries PLC, the deal was one of several coups this month. Last week, the company sold its Marshall Field’s stores, a Chicago-based department store chain, for an unexpectedly high $1.04 billion to Dayton Hudson Corp., owner of Target and Mervyn’s stores.

Alan Millstein, publisher of Fashion Network Report, said the two deals show that some of the recent pessimism on Wall Street over the retailing industry has been off-target. “It proves that there’s a fever pitch for quality retailers,” he said, despite the collapse of Campeau Corp.’s department store empire in January and the problems of other merchants.

BAT, owner of the Los Angeles-based insurance firm Farmers Group and other financial and tobacco interests, put its retail divisions up for sale last September to fend off a $21-billion takeover bid led by Anglo-French financier Sir James Goldsmith. On Monday, however, Goldsmith called off his effort, at least partly because California insurance regulators decided two weeks earlier to block any takeover of Farmers.

In a news release, BAT Chairman Patrick Sheehy said the offer for Saks “is properly capitalized” with a “sizable” amount of cash “so that the high level of growth and expansion at Saks can continue uninterrupted. The new ownership has affirmed its intention to continue a program of new store openings, renovations and expansions.”

For Investcorp, which has offices in Bahrain, New York, London and Switzerland, the deal would be another in a series of investments into U.S. and European retailers, several of them high-profile chains. The company made a splash by buying the famous New York jeweler Tiffany & Co. in 1984 for $135 million in cash and debt, turning it around and selling it back to the public in a stock offering three years later for roughly $200 million.

Investcorp also has 50% of Gucci, the Italian maker of luxury leather goods and fashion accessories, and it controls the Color Tile floor coverings business and the Carvel ice cream chain.

“These are people who do a lot of homework, and they’re known to be astute investors,” said Peter E. Berger, a merger specialist for the Arthur Andersen & Co. accounting firm.

Iraqi-born Nemir A. Kirdar, the president and chief executive of Investcorp, established the firm eight years ago has a vehicle for wealthy Middle Eastern investors to channel their money into Europe and North America. He now shuttles between homes in London and Bahrain.

Kirdar earned a bachelor’s degree in economics at what’s now known as the University of the Pacific in Stockton, Calif. He later received an MBA from Fordham University in New York and completed a management program at Harvard University. Before founding Investcorp, he was in charge of Chase Manhattan Bank’s operations in the Persian Gulf.

Soldatos said his company is interested in meeting with Saks’ Chairman Melvin Jacobs and other top executives to discuss the retailer’s future. He suggested that Investcorp wants to retain the current management team.

“We rely on professional management to drive the business. . . . We’re an owner, not an operator,” Soldatos said.

Paul Leblang, a Saks senior vice president, said the company’s management was disappointed that its bid failed, but he went on to praise Investcorp’s track record. “We are all interested in staying on as the management of Saks and are interested in sitting down with Investcorp and finding out what their plans are.”

Among the other losing bidders for Saks were General Cinema, parent of the Neiman Marcus and Bergdorf Goodman chains, and Joseph Brooks, head of the Ann Taylor stores. Dillard Department Stores of Little Rock, Ark., also was reportedly in the running.

BAT said it expects the Saks deal to close in about 10 weeks, and analysts didn’t see any serious financial or regulatory hurdles that could thwart the agreement. Barnard, however, said the deal could deepen concerns in Washington and among the public about the rising tide of foreign investment in U.S. assets.

Barnard and other analysts dismissed the notion that Investcorp’s Middle Eastern ties would hurt its image with American customers or suppliers, noting the company’s success with other U.S. investments.

SAKS CHRONOLOGY

September, 1989: BAT announces plans to sell Saks, plus its sister retailing operations and certain other assets, as part of a strategy to thwart an unsolicited takeover attempt by an investment group led by the Anglo-French financier Sir James Goldsmith.

March-April, 1990: Saks management announces that it has submitted a buyout bid for the chain. The proposal is made jointly with Tobu Department Store Co. of Japan.

BAT announces the sale of its Breuner’s furniture retail and rental subsidiaries. Negotiations continue for the sale of Ivey’s, a specialty department store chain with 23 stores in the Carolinas and Florida.

BAT announces Monday that it has agreed to sell Saks’ sister retailer, Chicago-based Marshall Field & Co., to Dayton Hudson Corp. for $1.04 billion. Meanwhile, the Goldsmith group drops its $22-billion bid, but BAT says it will continue its restructuring and asset sales.

Wednesday: BAT announces that it has accepted a bid of $1.5 billion for Saks from Investcorp, an international investment bank with a wide range of retail and other holdings.