Saks Open to Possibility of Sale, Merger
Saks Fifth Avenue said Thursday that it is exploring strategic changes such as a sale or merger. Sources close to the deliberations said the company is also considering the possibility of a management-led leveraged buyout.
The majority owner of Saks is Investcorp International, a Bahrain-based investment bank with a history of profitably selling off its stakes in upscale retail operations. However, sources say Saks’ board actually initiated the exploration of options.
Those sources said Saks’ management might decide to buy controlling interest from Investcorp if there are no suitable merger partners and no acceptable acquisition bids.
Saks, an upscale retailer, would not publicly disclose an asking price. Investcorp spent $1.6 billion when it acquired Saks in 1990 and sold 20% of its stake to the public in 1995 for $25 a share, or $425 million.
The value of those public shares soared in early trading, but the stock traded just below that original price as recently as Wednesday. Investcorp and Saks’ management are disappointed with the stock performance, considering the improvement in Saks’ financial performance.
The company’s earnings rose 95% to $55.8 million on sales of $2.2 billion in its last fiscal year. For the first quarter ended May 2, earnings rose 15.1% on sales of $582.9 million.
“Saks has been a fairly strong performer, and this might be the best opportunity to obtain maximum value,” said retail analyst Walter Loeb of the New York-based Loeb Associates. The retailer has had fairly strong sales growth--particularly in California and Florida, the states with the largest number of Saks stores. Saks has nine stores in California--six of them in the Southland. It also has seven outlet stores in the state. Saks plans to open two more stores in California this year--one of them in Pasadena.
“Any buyer would have to be mindful of the value of Saks’ California operations,” said Kurt Barnard, a New Jersey retail economist.
Saks has sought to expand sales and earnings by focusing its expansion in Florida, the Northeast and California. However, Barnard said Saks is reaching the limits of growth.
“They’re running out of suitable sites for their full-line stores,” he said. “There’s an irony--the wealth generated from the strong stock market has resulted in rising sales at Saks and other upscale stores. But there’s been economic turmoil in Asia. What if the stock market declines? This might be the proper time for Saks to cash out with a merger or sale.”
In the past, Investcorp timed its divestment of other upscale holdings well--selling off its holdings in Tiffany and Gucci profitably.
Saks said it has engaged the services of Goldman Sachs and Merrill Lynch for its strategic review but that “there can be no assurance that any transaction will occur.”
After Thursday’s announcement, Saks shares jumped $2.69, closing at $27.50 on the New York Stock Exchange.
Some industry analysts said foreign operators--upscale French merchandiser LVMH Moet Hennessey-Louis Vuitton, Asian investor Dickson Poon and Gucci--are possible bidders.
Upscale merchandiser Prada recently purchased a 9.5% stake in Gucci. Gucci said the purchase was unsolicited and announced on Wednesday its own review of “strategic alternatives.”
Some analysts said Dallas-based Neiman Marcus--Saks’ rival in the upscale market--might be interested in Saks.
