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The sale of

Neiman Marcus


is a major victory for longtime holders of the luxury retail empire, who have seen their shares climb nearly 40% this year. But has time run out to cash in on this company's success?

Although much of the recent gains came from takeover speculation, the stock was no slouch before the buyout talk began. Unlike its fellow acquisition targets in the retail sector -- stragglers such as

Toys R Us









Circuit City


-- Neiman Marcus is at the top of its game as a purveyor of high-end goods for the well-to-do. It rose 35% in 2004, as its elite clientele became a virtual spending spigot, and the stock has generally proved a winner for most of the last decade.

Wall Street has been touting the retailer's hefty price tag as evidence that the luxury market will continue to flourish. But the action in its stock is evidence there could be cracks in the deal's armor. Sinking as much as 6.3% after the agreement was announced, the stock is trading at a sizable discount to the winning bid, as traders wrestle with a number of uncertainties.

The situation offers average investors a clear-cut arbitrage opportunity: Buy Neiman shares at $93, and if everything goes according to plan, you get a 7.5% return in six months. Good money for sure, although the equation contains some big "ifs."

On Monday, two private-equity firms, Texas Pacific Group and Warburg Pincus, said they agreed to buy the company for $5.1 billion, or $100 a share. Pending shareholder approval, the deal is scheduled to close in November, and the largest shareholders, Neiman Marcus Chairman Richard A. Smith and his family, have already tipped their hat to the plan.

Last week, traders bid the stock up over $100 several times amid reports that Neiman would likely garner a price tag closer to $110 or $113 a share. But that exuberance cooled as turbulence in the high-yield debt market had investors wondering if the arbiters of credit were preparing to rein in financing.

"The high-yield market got to its lowest-risk premium in the latest cycle earlier this year, and it has widened out pretty dramatically in a short period of time since then," said Marty Fridsen, publisher of Leverage World, a research service for high-yield credit investors.

"We've gone from a very receptive market for financing heavily leveraged deals, to seeing a rash of postponements of deals citing market conditions, and last week a couple went ahead at much higher yields than had initially been anticipated by the issuer," Frisden said.

The restive junk market is attributable to a variety of factors. Two of the investment-grade market's largest credit issuers,




General Motors


, are in danger of being downgraded to junk status; that would rattle the market.

Perhaps more importantly, prognosticators have been scaling back their estimates for U.S. economic growth after a disappointing first-quarter GDP report. This comes amid renewed signs of waning consumer confidence and general apprehension that the extended period of low interest rates has created a credit bubble that has yet to pop.

A selloff ensued in shares of Neiman Marcus as it became clear the price would be lower than last week's high hopes. Although $100 a share is still a rich 19 times this year's earnings estimates, momentum continued to push shares down after the deal was announced, reversing the usual trend for the stock price of an acquired company. Meanwhile, traders began to question whether the deal might fall apart before it closes if recent trends in the bond market continue.

"A lot can happen in six months," said Jerry Paul, managing partner with Quixote Capital Management, whose fund is long the stock. "There are a lot of risks out there these days, and people are especially concerned about financing risk."

Normally, a company that has agreed to be acquired trades at a slight discount to the price of the acquisition, factoring in risks that are inherent to financial markets. But Neiman Marcus is currently trading at close to a 7% discount to its price, while traders said the discount would normally be closer to 2% or 3%.

Taking all of the risks into account, Paul said the spread probably offers investors a good opportunity.

"If an individual got involved with this, it's important that they understand the downside," he said. "The risk is that the deal will fall through, they won't be able to get their money, and the stock will fall into the $70-to-$80 range. I think there's a good chance the deal will go as planned, since the buyers have had plenty of time to assess their financing options. But you don't want to naively think that these trades are always lay-ups."

Of course, in the event the deal did fall through, investors would still have a great company on their hands in the long term, some observers say.

"All things considered, this risk profile is pretty good, considering what you normally get in the stock market," Paul added. "If everything moves along as we would all anticipate, then this is a deal where, somewhere down the road, you should be getting 100 bucks."