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Final Bids for Barneys Expected Next Week

Financial firms looking to buy Barneys New York, on the block since June, are expected to submit their best and final offers by the end of next week.

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NEW YORK — Bidders for Barneys New York are expected to submit their best and final offers by the end of next week.

The majority of those still in the running are financial firms, although it is understood there also are some nonfinancial companies interested. Among the financial firms is J.W. Childs and one industry player is Elie Tahari.

Executives at J.W. Childs did not return calls for comment. Freeman Spogli & Co., another financial company, also made it to the second round of bidding and was keen on Barneys but has now dropped out, financial sources said. Partners at the firm could not be reached for comment. Both J.W. Childs and Freeman Spogli also passed on an investment in Fortunoff, an investment banker said.

As for designer Tahari, he’s still looking for a financial partner. Some merger and acquisition specialists here and in London said that Howard Tillman, the owner of Jaeger, is one possible candidate and that he is in the middle of conducting due diligence. Others close to Barneys’ financial circle say that they’re not aware of any “snooping of the books” by Tillman, however. A spokeswoman for Tillman said he is traveling and could not be reached for comment. Tahari also could not be reached for comment.

Barneys New York was put on the auction block at the end of June by its owners, Whippoorwill Associates and Bay Harbour Management, the two backers that pulled the upscale retailer out from bankruptcy. Peter J. Solomon Co. and Morgan Stanley are the investment advisers to Barneys.

Of the financial buyers that initially stepped up to the plate, six reached the second round of bidding, and Tahari, considered an industry player, was the seventh to move into round two, according to merger and acquisition specialists. Sources said that management presentations were made to the seven potential bidders. How many will actually make a final offer remains to be seen, but investment bankers said as many as three or four “are likely.”

By now, the parties are in their final stages of due diligence. Bidders have already had extensive discussions with their lenders, and with their due diligence nearly done, are preparing letters of commitment for financing, investment sources said.
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Meanwhile, bankers and merger and acquisition specialists are wondering what will be the final purchase price for Barneys. Financial sources said the retailer’s price tag had been pegged at $400 million, while Barneys’ owners hoped a bidding war would propel that sum further north. That $400 million price tag includes the buyer assuming about $90 million in long-term debt. Assuming due diligence doesn’t kick up any dirty secrets, a bid within the range of $400 million — but probably not much higher — is still likely, bankers said.

According to other financial sources, the process should move fairly quickly once the bids are submitted. While the price offered would likely be the first item on the agenda that is reviewed, investment bankers said the sellers and their advisers would also pay close attention to any restrictions that a lender may place in its letter of commitment for financing. In the end, the bidder in the strongest position — combination of best price and ability to get the deal to fruition — will be the new owner of Barneys.

Of course, just because a firm is still doing due diligence doesn’t necessarily mean a bid will be submitted. Something might come up during the investigative process that causes a lender to say no.

In addition, financial buyers prefer that existing management, because of their proven track record, stay in place and continue to run the acquired firm. In the case at Barneys, the tenure of certain management team members, such as Howard Socol, chairman, president and chief executive officer, would be part of the negotiation process. In the end, it will be the buyer who makes the final decision on which staff members get to stay.

One example is the April purchase by J.W. Childs of Joseph Abboud from RCS MediaGroup for $73 million, less debt. The Boston-based private equity firm immediately hired as president and ceo Marty Staff, whose past posts included stints at Hugo Boss USA Inc. and Calvin Klein Co. Staff replaced Robert J. Wichser, who was president and chief operating officer of JA Apparel while the Abboud operation was owned by RCS MediaGroup.

So far, the Barneys operation seems to be in the right position for a sale. For the three months ended July 31, the most recent numbers available, income was $891,000 or 6 cents a share, versus a loss of $2.1 million, or 15 cents, in the same year-ago quarter. Earnings before interest, taxes, depreciation and amortization skyrocketed 94.3 percent to $9.3 million compared with just $4.8 million last year. Sales rose 14.9 percent to $102 million from $88.7 million, while same-store sales gained 13.8 percent.
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— With contributions from Ellen Burney, London
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