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Saks Attracts Icelandic Suitor

Iceland's Baugur Group says it is mulling a buyout bid for the retailer.
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Updated from 10:25 a.m. EDT

SAN FRANCISCO -- An Icelandic investment firm is eyeing an acquisition of

Saks

(SKS)

, opening the possibility of another U.S. luxury retailer falling into the hands of foreign investors.

Shares of Saks jumped 6% Tuesday after Baugur Group disclosed in a regulatory filing that it owns 12.2 million shares of the company, representing an 8.5% stake. The firm said it expects to begin talks with Saks' management and board about a possible acquisition.

Baugur is an investment company focused on retail, property and media in Iceland, the U.K., and Scandinavia. Among its retail holdings are Hamleys, an international toy retailer; Goldsmiths, the U.K.'s second largest jewelry retailer; and Magasin du Nord and Illum, one of Denmark's largest department store chains.

In the filing, Baugur said it has held discussions with Dubai-based Landmark Group about possibly making a joint bid.

Landmark, a retailer with multiple franchises in the Middle East, owns 1.66 million Saks shares, representing a 1.2% stake. The firm is run by Indian billionaire Micky Jagtiani.

New York-based Saks has long been rumored to be a takeout target, but talk has heated up in recent weeks, with Baugur being speculated in the media as a suitor. The company's stock has climbed 15% since the beginning of the month.

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Shares recently were up another $1.07, or 5.4%, to $20.86. A Saks representative declined to comment on Baugur's filing and the prospects of a buyout.

Saks is the second luxury retailer to be courted by foreign investors in recent months. In August, Dubai's Istithmar edged out Japan's Fast Retailing in a bidding war to buy upscale brand Barneys from

Jones Apparel

(JNY)

. The final price tag was $942.3 million.

Dana Cohen, an analyst for Banc of America Securities, said there had always been a high degree of probability that Saks would eventually be acquired.

"We recognize that current markets could make that challenging for a traditional private-equity player," she wrote in her research. "However, given the recent sale of Barney's by similar investors for more than five times EBITDA, we do not find this turn of events surprising."

Christine Augustine, an analyst for Bear Stearns, put out a note earlier this month speculating that an acquirer would probably attempt to unlock some of Saks' real estate value. She forecast a buyout in the range of $23 per share.

"We are reluctant to get more positive on the shares based on the fundamentals, particularly given the inconsistent gross margin performance, and the reliance on strong same-store sales growth amid an uncertain macro economic backdrop," Augustine wrote of Saks.

Although she noted that the luxury consumer is still spending, Saks still faces some "bumps in the road" as it continues to work through its turnaround strategy, Augustine said.