Bidding war for Barneys department store

Fast Retailing of Japan and Dubai investment vehicle Istithmar lock horns over upmarket US department store chain Barneys.
Barneys has become the target of a bidding war between Istithmar of Dubai and JapanÆs Fast Retailing.

On Monday, Fast Retailing upped its offer for Barneys to $950 million. This was in response to the latest bid of $900 million submitted by Istithmar one day earlier on Sunday. IstithmarÆs Sunday bid was up 9% from its original offer and matches the offer tabled by Fast Retailing on July 31.

Analysts say the speed with which Fast Retailing responded suggests that they may have kept leeway in their bid for a competitive situation. JPMorgan, advisors to Fast Retailing, had no comment.

Barneys New York is a wholly owned subsidiary of NYSE-listed Jones Apparel Group and operates 34 stores in the US including its Manhattan flagship. It was founded in 1923 and acquired by Jones in December 2004.

On June 22, Jones said it had entered an agreement to sell Barneys to Istithmar for $825 million in cash. Under the terms of the agreement with Istithmar, Jones was permitted to entertain unsolicited takeover proposals for Barneys which were made by July 22 and completed by August 11.

On July 5, Jones received an offer from Fast Retailing which bid $900 million in cash, in a proposal subject to due diligence and other conditions. Then, on July 31, Fast Retailing submitted an updated proposal confirming the purchase price and, significantly, removing the due diligence condition that was in the first bid.

Fast Retailing operates 1,800 specialty stores in 12 countries. For the year ended August 2006, it posted sales of $3.7 billion on which it earned an operating profit of $586 million. Its brands include UNIQLO, JapanÆs largest apparel retail chain with stores in Japan, the US, UK, China, South Korea, and Hong Kong. Fast Retailing is hungry for growth via acquisition and in 2006 had considered a takeover of HK-listed Giordano.

Fast Retailing said it had communicated its interest in acquiring Barneys to Jones last year. If Jones were to now terminate its agreement with Istithmar in favour of Fast Retailing, Jones will pay Istithmar a termination fee of $22.7 million.

Istithmar is an investment vehicle of the government of Dubai. The bid reinforces Istithmar's focus on the retail sector and luxury market. In the last three years, it has invested $2 billion of capital in over 30 companies in the consumer, industrial and financial services sectors.

Peter J Solomon Company and Citi are advising Istithmar. Citi is also providing financing for the deal and is taking an equity position. Citi had no comment.

Middle Eastern investors are becoming increasingly active in M&A, both in unsolicited offers and auction situations. On July 23, Dubai Aerospace Enterprise emerged as winner in an auction for a 55%-60% stake in Auckland Airport, valuing the target at $5.6 billion. (The outcome of the deal is currently unclear because it could face governmental opposition.) Meanwhile, Qatar Investment Authority has acquired a 24% stake in the UK supermarket chain SainsburyÆs and could be tabling a bid for the entire business. In June, Saudi Telecom spent $3 billion to acquire a 25% stake in Malaysian telecom operator, Maxis.

When announcing the first Istithmar bid, Jones had said the deal would yield it a profit of approximately $290 million, for an asset it has owned for less than three years. The cash on the table has already increased by $125 million. Good news for both Jones Apparel, and its advisor, Goldman Sachs.
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