Department stores

Department stores around the globe are feeling the pinch as debt-burdened consumers are much less willing to open their purse strings. Here's the latest:

2010

Mar. 30: Upmarket London department store Harrods Ltd. insists that it's not for sale after a report that a Qatar entity had made a takeover proposal. The retailer, based in the upscale Knightsbridge area of London, is owned by Mohammed Al Fayed, father of Dodi, who was killed in a Paris car crash with Princess Diana in August 1997. - Laura Board

2009

Nov. 30: Barney's could be a hedge fund's New Year's present: Istithmar World, Dubai's investment arm, reportedly could delay payments on multi-billion debt that could impact its ownership of Barneys New York, which it purchased in 2007 for $942 million, according to the New York Post. Supposedly waiting in the wings are New York hedge fund tycoon Richard Perry and supermarket magnate Ronald Burkle. - Gerald Magpily

Oct. 29: TPG, Blum Capital exit Myer: The U.S. private equity owners of Australia's largest department store operator, Myer Pty. Ltd., sold their stake in an initial public offering Thursday that valued the business at A$2.4 billion ($2.2 billion). - Paul Whitfield

Sept. 1: Barney's to file for bankruptcy?: The retailer may file for bankruptcy or undergo a restructuring process resulting in its owner Dubai's Istithmar World Capital losing control of the high-end retailer. Additionally, hedge fund Perry Capital LLC has been approached by department store chain, Holt Renfrew, about a joint offer for control of Barneys. - Maria Woehr

June 24: Arcandor unit likely to get state aid: Bankrupt German retail giant Arcandor AG will likely win approval for a special government loan as Arcandor's top executive and his counterpart at Metro AG continue a public battle over the creation of a department store behemoth. The unit, Quelle GmbH, will receive a special €50 million ($70 million) loan from national and regional governments, Katja Hessel, Bavaria's deputy finance minister, said Wednesday. - Andrew Bulkeley

June 11: Arcandor asks for U.S.-style prepack bankruptcy: The insolvent German retailer hopes to renegotiate labor pacts and store leases. - Andrew Bulkeley

June 10: Neiman's quarterly results show recession's toll: The private equity-backed retailer suffers steep third-quarter and Ebitda losses as business dwindles for luxury stores across the board. - Christine Idzelis

June 4: Department store chain Gottschalks Inc. has sold 14 of its store leases and three of its company-owned stores to two bidders for $18.3 million. (See more on the auction here.)


May 26: P. Schoenfeld gets support: The hedge fund pushes for governance changes at retailer Saks Inc.

May 25: Arcandor bankruptcy fears mount: The CEO of the retail and tourism group steps up his campaign to secure state funding;  - Andrew Bulkeley. Meanwhile May 21: German retailer chain to liquidate after talks fail: U.K. investment company Dawnay Day is faulted for operational failures and legal miscues in its four-year ownership of the venerable Hertie stores. - Matt Miller

May 13: Macy's continues search for the perfect fit: Macy's Inc. reported a first-quarter loss of $88 million compared to a loss of $59 million a year earlier. With consumers still spending cautiously, sales were off 9.5%. The results reflect the gloomy retail environment, but also show that four years after paying $18 billion for rival May Department Stores Co., Macy's chief executive Terry Lundgren is still searching for the right mix of stores and strategy. -- Suzanne Stevens

The company was back in the news in September with the new tack.

In early May, Filene's Basement Inc. filed for bankruptcy to help its sale; and then it found cash on the courtroom floor. Many had wondered earlier whether Filene's Basement was headed for bankruptcy. The latest: June 8: Filene's Basement draws penthouse price; and then June 11: Judge orders a second Filene's Basement auction

April 8: The company was likely to liquidate if it were to file for Chapter 11, Bill Welnhofer, managing director and head of Robert W. Baird & Co.'s corporate restructuring group told Dealscape. -- Maria Woehr

A bankruptcy, it turned out, would follow those of fellow department store chains Gottschalks Inc., Mervyn's Holdings LLC, Boscov's Inc. and Fortunoff Holdings LLC, owned by Lord & Taylor LLC parent NRDC Equity Partners LLC.

Meanwhile, several department store chains made the headlines in Dealscape's retail roundup in January. In December, Moody's downgraded PE-backed Neimans and hedge funds wanted a look behind Dillard's Inc.'s tattered doors.

Meanwhile, (now bankrupt) Icelandic investor Baugur Group hf was thought to have its eye on Saks Inc., but it isn't likely to announce a deal in 2008, according to a New York Post report Sept. 5, given the tight credit markets and a wider-than-expected quarterly loss for the luxury department store chain. The news came weeks after Aug. 21 reports indicated Baugur was still weighing a deal for Saks. Baugur had said in an Oct. 29, 2007 SEC filing it could make a joint bid for Saks alongside Dubai's Landmark Group to boost its U.S. presence. But Baugur's Jon Asgeir Johannesson then retreated in April, saying the firm was "quite happy" with its 8.5% stake. Bid speculation was again renewed in June as Baugur rolled over contracts for the retailer's shares.

Meanwhile, Saks has not been immune to the pinch felt by retailers as even wealthy shoppers tighten their purses. The company Aug. 18 said it lost $31.7 million, or 23 cents per share for the second quarter, up from $24.6 million or 17 cents per share for the year-ago period. The company also predicted a flat or low single digit comparable store sales decline for the second half of 2008.

Speaking of feeling the pinch, less than a week after the last department store chain went under, Reading, Pa.-based Boscov's Inc. filed for bankruptcy protection Aug. 4. The company blamed the collapse in the housing market, high gas and energy prices and rising food costs. The credit crunch also strained Boscov's liquidity, increasing the cost of capital and forcing suppliers to tighten credit terms, The Deal's Ben Fidler noted. The company runs 49 stores and had $538 million in assets and $479 million in debts as of May 3, Bloomberg reported, citing court documents.

The news came just days after Mervyn's LLC was the latest department store chain to make headlines; the company filed for bankrutpcy protection July 29, just days after press reports indicated a filing could be coming soon. The Hayward, Calif.-based retailer, which Cerberus Capital Management LP, Sun Capital Partners and Lubert-Adler/Klaff Partners LP acquired from Target Corp. in a $1.2 billion deal in 2004, is facing the toxic combination of lenders pulling financing and vendors ceasing shipments, which has put the choke on many retailers today.

Meanwhile, NRDC Equity Partners LLC -- the private equity firm that owns Lord & Taylor LLC -- on July 16 made good on a deal that Canadian press reports said might be in the works July 10. The private equity firm unveiled plans to buy Hudson's Bay Cos., Canada's oldest department store chain, in which it already held a 20% stake, and creating in an enlarged entity, Hudson's Bay Trading Co., which will also include Lord & Taylor and Fortunoff, which it picked up earlier this year as the jewelery and home goods retailer was sliding toward bankruptcy. NRDC said it would invest $500 million in the endeavor, while the deal likely values Hudson's Bay at nearly $1 billion, The Deal's Peter Moreira wrote.

Canadian papers the National Post and Globe and Mail said talks were ongoing a week ahead of the announcement. Deal rumors had been swirling swirled since Hudson's Bay's owner Jerry Zucker, who acquired the retailer in 2006 in a deal worth nearly C$1.1 billion ($954 million) when it was approved, died in April. Among Hudson's Bay's other holdings are discount chains Zellers and Fields and home goods chain Home Outfitters, the report said. NRDC is considering expanding L&T abroad, possibly Canada, Mexico and Asia, the report said.

The deal is the latest for NRDC, which is a joint venture between National Realty & Development Corp. principals Robert C. Baker and Richard A. Baker and Apollo Real Estate Advisors LP partners William Mack and Lee Neibert. It's part of a trend as buyout firms shop the world for retail deals, Dealscape's George White argued.

NRDC in February agreed to bail out ailing jewelry and home goods retailer Fortunoff Fine Jewelry and Silverware LLC with a $100 million deal, the target announced alongside news it would file for bankruptcy protection. The news came days after a New York Times report said the two were in talks.

Meanwhile, Barington Capital Group LP's chairman and chief executive James Mitarotonda's longstanding activist campaign at family-run department store chain Dillard's reached a settlement late on April 1. Barington and fellow hedge fund, Clinton Group Inc., nominated a slate of four directors for the company's 12-person board. The retailer agreed to add one of his candidates, as well as three who were mutually agreed upon, and Mitarotonda agreed to call off his campaign.

The agreement came after Barington again stepped up the pressure with a Feb. 29 letter demanding to see a list of the company's shareholders to bring on board for its campaign. The news came a month after Barington and fellow hedge funds Clinton Group Inc. and RJG Capital Partners LP, collectively holding nearly 5.32%, suggested measures to boost Dillard's value, particularly where its real estate assets were concerned. The investors also took issue with the company's stock price, which they said had dipped nearly 52% since June 30, 2007, and while its competitors didn't post blockbuster performances, the S&P Retail Index fell just 23% in the same period.

• The January news came seven months after the hedge fund's chairman and CEO James Mitarotonda sent a letter to the company's chairman and CEO William T. Dillard II about a meeting to talk about boosting profitability. The Deal's Dave Shabelman pointed out at the time the New York hedge fund has taken activist positions in other retail companies, including Stride Rite Corp., Steven Madden Ltd., Payless ShoeSource Inc. and Pep Boys-Manny, Moe & Jack.
• In August 2007, Mitarotonda sent a letter to the company's board, according to a Jan. 29 filing.
• Shabelman noted in September 2007 that persistent disappointing sales could amp up the campaign.

Earlier in 2008, Dealscape and Corporate Dealmaker took a look at Sears Holdings Corp. and what may be in store for the company. Meanwhile, Carl Icahn set his sites on J.C. Penney Co. with a sizable stake in the department store group, according to The Wall Street Journal. The investor, the Journal said citing an unnamed source, has been critical of the company's expansion, especially outside of shopping malls.

And kicking off January, The Deal's Christine Idzelis pointed out that leveraged retailers could be hard hit given the current economic climate, but that for niche department stores like high-end seller Neiman Marcus Group Inc., which TPG and Warburg Pincus LLC took private in 2005, it may be easier to weather the storm.

INTERNATIONAL SHOPPERS

In 2007, international investors went after a few high-end brand name department stores. There was Baugur's interest in Saks, which it disclosed in October. In August, two months after Dubai, United Arab Emirates-controlled private equity house Istithmar PJSC agreed to buy luxury chain Barneys New York, it finally won its prize after a last-minute bidder dropped out of the race.

Istithmar said in late June it would pay $825 million for Barneys and as the deal was nearing its close, Japan's Fast Retailing Co. swooped in with a $900 million bid for the Jones Apparel Group Inc. subsidiary on July 31. Istithmar then matched the figure Aug. 5, and Fast Retailing bumped its proposal to $950 million. Istithmar then raised its own offer to $924.3 million Aug. 8, a figure it deemed superior, because a sale to Fast Retailing would have entitled Istithmar to a $34.7 million breakup fee. The Japanese group had until 5 p.m. Aug. 9 to counter the offer and instead withdrew.

While a source told The Deal's Lisa Gewirtz-Ward at the time Istithmar wasn't likely to raise its bid after the initial emergence of Fast Retailing, the sale came, she wrote, as:

Bristol, Pa.-based Jones Apparel has been struggling as its client base shrinks in the wake of traditional department store consolidation. President and chief executive Peter Boneparth unsuccessfully tried to sell the entire company to a private equity firm last year.

Barneys, on the other hand, has been the company's top-performing asset, giving Jones Apparel an entry into the faster-growing luxury market. Barneys operates about 35 stores, including full-size flagship shops in New York, Beverly Hills, Calif., Boston and Chicago, along with smaller Barneys New York Co-Op locations and outlet stores.

Meanwhile, nearly a month after a report indicated Macy's Inc. was the latest megabuyout target, and two months after the department store group underwent a corporate name change, Women's Wear Daily said July 18, 2007 that interested parties Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. were trying to wrap up a deal ahead of a July 23 deadline. That date reportedly kicked off a series of investor meetings among the target's management. But as Gewirtz-Ward noted, the rumors seemed a little optimistic:

Several sources denied key portions of the report, and others question the feasibility of a leveraged buyout.

Neither Goldman Sachs' private equity arm nor its real estate unit are investing with KKR, as reported by Women's Wear Daily, a source with knowledge of the situation said. A second source said that other private equity firms mentioned in the article as potential suitors, such as Blackstone, have not taken a serious look at the retailer.

Although KKR's true intentions remain unclear, many sources questioned whether Macy's would make a good takeover target. A key problem is turning around the May'Department Stores Co. franchise, which has been struggling since Federated Department Stores Inc. bought the retailer for $11.7 billion in August 2005.

Women's Wear Daily reported July 18 that KKR and Goldman Sachs were working on an offer for the department store chain valued at $52 a share, or about $24 billion, nearly one month after Bloomberg reported the prospective bid, which gave the company's shares their largest surge in more than a year. After opening below $39 per share June 22, Macy's shares rose above $43 apiece before retreating to close at $41.43 each. They spiked above $43 each again July 6 as deal buzz again gave them a boost and rose to a high of $45.50 Wednesday morning, July 18. They opened just shy of $42 apiece the next day.

The buyout talk first surfaced as Macy's missed targets and felt the impact of a weak home goods market. The company has also struggled to rebrand the stores it picked up in its deal for May's. Will the retailer be able to ride what The New York Times in November called a "comeback" -- the resurgence of the U.S. department store -- or is a turnaround out of the question? The question came as other department store chains were trying to position themselves for greater competition.

• The initial Macy's speculation came the same day Jones announced its deal with Istithmar. No stranger to retail, the firm acquired discount retailer Loehmann's Holding Inc. in 2006 for $300 million from Atlanta private equity firm Arcapita Inc., an investment unit of Bahrain-based Arcapita Bank BSC.
• The news followed a New York Post report June 21 that Nordstrom Inc. was nearing a deal to sell its Faconnable brand as it expands its own Nordstrom stores, and that bids came in near $200 million. Days later, the New York Post said Nordstrom may have found a buyer -- an unspecified Lebanese private equity firm. On July 26, Nordstrom announced plans to sell the brand to Lebanon's M1 Group for $210 million.
• Back in August 2006, Saks Inc. sold its high-end Parisian chain to Belk Inc. for $285 million. The deal was the Birmingham, Ala.-based company's final divestiture in a string of five, part of a broader restructuring the company announced in 2005.
• Charlotte, N.C.-based Belk then unveiled plans in October 2006 to flip five of the stores in a $22 million, cash deal with York, Pa.-based Bon-Ton Stores Inc. Other asset sales in the transformation included: unloading its down-market group of Proffitts and McRae's stores to Belk for $622 million, and its Northern Department Store Group to Bon-Ton Stores for $1.1 billion.
• Even downscale department store chains such as J.C. Penney Co. and Kohl's Corp. began updating stores in an attempt to woo new customers. In October 2006, Kohl's hosted its biggest opening with 65 new stores in one weekend, and unveiled plans to redesign older stores in Boston, Las Vegas, Los Angeles and Minneapolis. While Penney opened 20 new stores in a month. Kohl's indeed was moving to make its new stores not only easier to navigate, but a comfortable destination that includes coffee shops and TV lounges.
  • The impetus for new stores may have been spawned by the Federated-May deal. Although both department store chains were avoiding a head-to-head with Federated, Kohl's and Penney were trying to woo former May customers put off by the Macy's experience, which is more upscale than most May chains.

BREAKING UP

To focus on the higher end of the market and its Macy's and Bloomingdale's stores, then-Federated announced two separate deals Nov. 17, 2006. The company unloaded discount bridal chain David's Bridal and upscale boutiques Priscilla's of Boston to Los Angeles private equity firm Leonard Green & Partners LP, as well as its After Hours Formalwear unit for about $850 million, collectively.

The news came a few months after Federated sold New York-based Lord & Taylor, another inheritance from May, to NRDC for $1.2 billion.