J.C. Penney reported to be takeover target

Saks is lining up buyers for lower-end subsidiaries

April 01, 2005|By Becky Yerak | Becky Yerak,CHICAGO TRIBUNE

CHICAGO - Another shakeup in the retail industry could be on the horizon, as J.C. Penney Co. Inc. emerges as a takeover target and Saks Inc. indicates that it might sell some stores.

Stocks of the department store chains closed up 8.3 percent and 9 percent, respectively, as Wall Street paid heed to what could be two more deals in a rapidly consolidating industry.

Private investment firms Cerberus Capital Management LP and Carlyle Group are teaming up to make a $16 billion to $18 billion bid for Penney, which has been lauded for its turnaround in recent years, according to a report yesterday in Women's Wear Daily.

Saks is trying to line up buyers for assets that include its regional department store group. Saks has hired investment banks Goldman Sachs and Citigroup to explore "strategic alternatives," The New York Times reported yesterday. The department stores for sale include Carson Pirie Scott of Milwaukee.

Saks and Penney would be the latest in a long list of retailers that have found themselves under new ownership or plan to put themselves on the block over the past year.

Last week, shareholders of Sears, Roebuck and Co. and Kmart Holding Corp. consummated a deal to create the nation's third-largest retailer.

A few weeks earlier, Neiman Marcus Group Inc. said it was considering selling itself as demand for luxury goods soars. And Toys "R" Us Inc. recently agreed to be acquired by a group that includes two private equity firms and a real estate developer.

Those developments were preceded by Federated Department Stores Inc.'s pending purchase of May Department Stores Co.

Wal-Mart Stores Inc. and Target have successfully taken on department stores in such product categories as toys and pots and pans. Retailers such as the Gap have outflanked the stores on apparel.

Since last fall, analysts have speculated that Saks could separate its high-end Saks Fifth Avenue department stores from its regional chains, which have been dragging down results.

In its latest fiscal year, Saks posted a 10.8 percent rise in same-store sales at its high-end stores, compared with a 1.6 percent increase at its middle-market chains.

"Mass merchants weren't leading the turnaround," said Theresa Williams, director of the Center for Education and Research in Retailing at Indiana University. "You really saw the luxury market at the forefront."

Women's Wear Daily also said that two private equity firms, Blackstone Group and Apollo Advisors, are interested in Saks' middle-range department store group, along with Neiman Marcus.

Saks has stores operating under the names Carson Pirie Scott, Bergner's, Saks Fifth Avenue, Off 5th and Younkers.

The speculation about Penney, which has posted four straight years of sales increases, surfaced days after Vanessa Castagna, its former No. 2 executive, signed on with Cerberus.

The investment firm manages $14 billion in assets and was part of the consortium that bought Mervyn's department store chain from Target last year. In January, it bought MeadWestVaco's papermaking facilities, including the paper mill in Luke, Md., which has 1,200 employees.

Castagna, who left Penney after being passed over for the top job, said in an e-mail last week that she will be chairwoman of Mervyn's but "will also be available for other Cerberus investment opportunities."

The Chicago Tribune is a Tribune Publishing newspaper.

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