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A Passion for Fashion: Cerberus Buys Rafaella, May Bid for Saks Chain

Cerberus Capital Management, a New York-based private equity firm, is set to close on an acquisition of Rafaella Sportswear at the end of the month.

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Cerberus is sometimes referred to as a vulture fund, having made investments in distressed companies. Cerberus' past industry-related investments include specialty retailer G&G, textile supplier Guilford Mills and intimate apparel retailer Frederick's of Hollywood. In March 2003, Cerberus also helped Sport Brands International purchase Fila. One of SPI's early moves was to shed its Enyce brand to Liz Claiborne later that year.

Cerberus and its affiliates manage funds and businesses representing more than $14 billion in capital. More investments in fashion and retail could be on the way.

Cerberus also may enter the chase for Saks Inc.'s NDSG, which consists of the nameplates Bergner's, Boston Store, Herberger's and Younkers. As reported last week, Bain Capital Partners is a private equity firm also eyeing Saks' group.

One advantage Cerberus has over Bain is its ownership of Mervyn's, which it acquired for $1.65 billion from Target Corp. in July 2004. The deal for Mervyn's was part of a consortium that included Sun Capital Partners and Lubert-Adler/Klaff and Partners.

One retail analyst at a major Wall Street bank said Cerberus could be the preferred financial player, since it would be easy for it to fold the business into its Mervyn's operation.

"Financial players without an existing infrastructure might have to negotiate a separate deal with Saks to pay the seller a fee to use the existing structure that's in place," said a retail investor, who is not affiliated with either private equity firm, but is familiar with the process.

Cerberus has been moving slowly with its Mervyn's investment, first conducting an in-depth analysis of the retailer's core markets, and then weighing store closures, said a retail consultant, who requested anonymity.

But Cerberus' appetite for fashion apparently has some limits. According to a financial source, one opportunity that it considered, but apparently took a pass on, was fashion house Bill Blass.

Haresh T. Tharani, chairman of The Resource Club Ltd., the largest licensee of Blass, owns a 60 percent equity stake in the design house, while Michael Groveman, chief executive of Blass, owns the balance. Tharani is said to be the partner pushing for a sale of the company.
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