Neiman Marcus Group Inc. spurned a recent proposal in which
buyout firm KKR & Co. (KKR) would invest in Saks Inc. (SKS) and
the two luxury retailers would merge, said people familiar with the
matter.
Neiman, currently exploring a sale or public offering, declined
the overture made earlier in May for a variety of reasons,
including the proposed terms and the complexity associated with a
such a deal, some of the people said. One of the people added that
down the line, it's possible they could entertain the merger idea
if the terms are compelling.
Neiman's private-equity owners, TPG and Warburg Pincus LLC, are
focused on looking for outright buyers for Neiman or taking the
retailer public, but aren't close to deciding what to do, they
said.
It isn't clear who delivered the merger proposal to Neiman. KKR
has been weighing an investment in Saks and considering the merits
of merging the two. Bankers at Goldman Sachs Group Inc. (GS) are
advising Saks on strategic alternatives, including a possible
sale.
Neiman's owners bought it in 2005 for $5.1 billion in cash and
debt.
They are wary of marrying Saks for a range of reasons, the
people said. The merger proposal as envisioned valued their
high-end retailer too low and could be hard to pull off with stores
in overlapping markets and a trio of buyout firms involved in the
negotiations, one of the people said. It isn't clear what value the
proposal placed on Neiman.
The department-store chains, while both upscale retailers, have
distinct identities that would need to be managed under a combined
company. In addition, Neiman's owners are concerned the two overlap
in some locations and could cannibalize each other, or that the
less-profitable Saks could become a drag on a combined enterprise,
the person said. In the most recent fiscal year, Neiman earned $140
million on sales of $4.35 billion, while Saks posted net income of
$62.9 billion on $3.15 billion in revenue.
The ultimate roadblock to a merger, though, could be getting
KKR, TPG and Warburg to agree on any deal. And companies with
multiple private-equity owners can sometimes run into complications
when the separate investors can't agree on how to navigate
difficulties that arise.
--Suzanne Kapner counributed to this article.
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