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TheDeal: Is Saks an LBO Candidate or Strategic Target?

NEW YORK ( TheStreet) -- Did Saks Inc. (SKS) hang a sale sign out for itself because of a hot market for luxury retail leveraged buyouts or because it's in the crosshairs of a strategic acquirer?

Those were the possibilities Wall Street bankers and analysts kicked around after The New York Post broke the news Tuesday that the iconic New York department store has hired investment bank Goldman, Sachs & Co. to explore strategic alternatives.



The Daily Deal has since confirmed Saks has hired the investment bank.

But one retail sector investment banker said hiring Goldman was more likely a defensive response to an investor that recently and significantly increased its stake in the company.

Saks spokeswoman Julia Bentley said in an e-mailed statement, "It is against our policy to comment on rumors or speculation."

Southeastern Asset Management Inc., which has been invested in Saks for several years, has had the biggest run-up in its share ownership within the past month. In a regulatory filing on Dec. 10, the investment firm reported it had boosted its stake to 17.8%. Then, by April 26, the firm raised its share of the company to 19.3%.

Although Southeastern is known to sometimes take an activist stance -- witness its pairing up with Carl Icahn to oppose Michael Dell and Silver Lake's $24.4 billion LBO for Dell Inc. -- a source familiar with the Saks situation said it was unlikely that the firm was directly behind a sale process.

Southeastern declined to comment on its investment.

Other major shareholders who have accumulated stakes in Saks, according to regulatory filings, include Diego Della Valle, the chairman of Tod's SpA, with nearly a 15.1% stake, as well as Italian bank Mediobanca Banca Di Credito Finanziario SpA, with about a 5.3% stake. Mexican tycoon Carlos Slim, through his company Inmobiliaria Carso SA de CV, has a 15.4% stake.

But one thing that could be motivating Saks is the potential buyout of rival Neiman Marcus Group Inc., which recently hired Credit Suisse Group to explore a dual-track initial public offering and sale.

As Neiman shops itself, Saks too, could be looking to take advantage of the available pool of buyers being generated.

And Saks has been considered a leveraged buyout target ever since Neiman Marcus was taken private in 2005 by private equity firms TPG Capital and Warburg Pincus LLC in a $4.7 billion deal.



The financial crisis squashed takeover speculation, but with the buyouts of J.Crew Group Inc. and Gymboree Corp., both in 2010, practically every retailer was thought to be a possible target.

While reports have Kohlberg Kravis Roberts & Co. LP weighing buyouts and a merger of Neiman and Saks, an industry analyst said such a move was unlikely.

Neiman and Saks have overlapping stores at a number of locations, so acquiring Saks to merge with Neiman Marcus would essentially be the equivalent of buying a competitor to shut it down, this analyst said.

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