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Pricetag on Saks $1.5 Billion; New Owner is Hands-off Operator

April 26, 1990

NEW YORK (AP) _ The international investment company buying Saks Fifth Avenue plans to stick with the managers and the strategy that have made the high-fashion retailer successful, officials said.

Investcorp, a Middle East-based company, is paying $1.5 billion to add the Saks name to a rack of upscale retailing investments that include Tiffany jewelers and Gucci.

As the rich price indicated, Saks had been one of the most sought-after retailers on the market after its British parent, BAT Industries PLC, put it up for sale last September.

″It does show that a profitable and prestigious U.S. retailer can command top dollar despite all the retail properties on the market″ and a sluggish retail environment, said Janet Mangano, an analyst at Josephthal & Co.

The transaction announced Wednesday by Investcorp and BAT should be completed within 10 weeks. Investcorp will assume certain of Saks’ liabilities under the agreement.

BAT Chairman Patrick Sheehy said Investcorp’s proposal was financially sound and contained a substantial amount of equity to maintain Saks’ reputation and support planned expansion of the 45-store chain.

″Saks will gain a new owner with a proven track record in building luxury businesses, solid financial backing, and a commitment to continuing the highly successful strategy established by BAT for the company,″ Sheehy said.

Arthur Martinez, senior vice president of BATUS Inc., BAT’s U.S. arm, said the acquisition will have nothing in common with the heavily debt-dependent deals that caused problems for others, such as Campeau Corp.’s U.S. retailers.

″This is not a traditional LBO (leveraged buyout) structure,″ Martinez said in an interview. ″Adequate capital is being put into the business to manage it the way that is has been managed.″

Store openings and renovations will be continued by the new owners, Martinez said. Excluding a store in Texas that is being closed, Saks has 45 stores in 20 states. The flagship store of the New York-based chain is located in Manhattan on Fifth Avenue.

Investcorp is widely believed to have immense financial clout. It normally takes a laissez-faire approach to the companies in which it holds stakes. For that reason, it is anticipated that Saks’ existing management, including Chairman and Chief Executive Officer Melvin Jacobs, will be retained.

Jacobs has been credited with steering Saks on a successful course. The retailer rang up sales of $1.3 billion last year and earned $111 million before taxes and interest expenses.

Paul Leblang, Saks senior vice president and director of marketing, said Jacobs was unavailable to comment. Jacobs, in partnership with a Japanese retailer, was one in a handful of losing bidders.

Investcorp was established in 1982 and operates from bases in New York and London as well as well as cities in Switzerland and Bahrain.

It is incorporated in Bahrain and publicly traded there. A controlling interest is owned by Investcorp’s management committee and it has about 11,000 shareholders in total, including wealthy Middle Eastern, American, British and other European investors.

Investcorp previously has bought into a wide range of retailers. It acquired the jewelry chain Tiffany & Co. from Avon Products Inc. and took it public in 1987; it owns 50 percent of the Italian luxury leather goods and fashion company Gucci; and has an interest in Chaumet, France’s largest retailer of prestige jewelry. It also has stakes in ice cream chain Carvel Corp. plus some retailing and non-retailing companies.

Paul Soldatos, a member of Investcorp’s management committee that led the effort to buy Saks, said the company intends to meet with Saks management as soon as possible. He said in an interview that no discussions had taken place to date because the Jacobs group was a competing bidder.

″It is our intent to maintain the continuity of management,″ Soldatos said. ″We rely on professional managment to guide the business.″

The acquisition of Saks will make Investcorp a powerful behind-the-scenes force in a lucrative segment of the U.S. retailing industry.

″They really have an eye on retailers that have a name,″ said Janet Mangano, an analyst at Josephthal & Co. ″What’s very significant about this is Investcorp automatically becomes a major participant in U.S. specialty retailing.″

BAT is selling its U.S. retailing businesses as part of a restructuring to focus on its core tobacco and financial services operations. The British conglomerate undertook the move to fend off a hostile $22 billion takeover bid by a group led by Anglo-French financier Sir James Goldsmith.

The Goldsmith group dropped its bid earlier this week but BAT promised to carry out its restructuring to enhance the company’s value to shareholders.

On April 19, BAT announced the sale of Marshall Field & Co., the Chicago- based retailer, for $1.04 billion to Dayton Hudson Corp.

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