saks could split, federated wants neiman-marcus

SUZANNE KAPNER and ERICA COPULSKY

Saks Inc. has held discussions with Federated Department Stores about the sale of its middle market department stores, The New York Post has learned.

The talks, which have taken place over the last few months, are said to have cooled in recent days, because Federated has "bigger fish to fry," according to one executive familiar with the situation.

The conversations are the most recent example of the retail roulette playing throughout the industry, as potential acquirers try to line up the ripest targets.

Federated had been holding simultaneous discussions with Saks and May Department Stores Co., and its lessening interest in Saks caused some observers to speculate that talks with May have intensified.

Another possibility is that Federated is taking a close look at Neiman Marcus Group, now that its controlling shareholder, the Smith family, is considering a sale, sources said.

Federated CEO Terry Lundgren once ran Neiman Marcus and has made no secret of his desire to take Federated in a more upscale direction.

But any acquirer of Neiman Marcus, a top rate player in luxury at the height of a luxury boom, would likely have to pay top dollar, something that Federated is typically unwilling to do.

The conversations between Federated and Saks, which could still be revived, show that Saks, which in addition to its mid-tier department stores also operates namesake luxury stores, is serious about splitting itself into two companies.

Such a plan is expected to be discussed at a Saks board meeting scheduled for the first week in March, sources said.

Julia Bentley, a spokeswoman for Saks declined to comment.

Lundgren is good friends with Saks executives and spent Super Bowl weekend playing golf with Brad Martin, the chief executive of Saks Inc., and Ron Frasch, the chief merchant of Saks Fifth Avenue, sources said.

For now, at least, Saks is proceeding with a plan that would allow it to concentrate on the most promising part of its business, the Saks Fifth Avenue division, encompassing 58 namesake luxury stores, and 52 Off 5th outlet stores.

Saks Fifth Avenue would likely be spun off to shareholders as a separately traded company, allowing for the sale of the 241 department stores, under names like Parisian, Proffitt's and Carson Pirie Scott, to private-equity firms and regional retailers, sources said.

Depending on whether they are bought as a whole or split up, the department stores could fetch $2.1 billion to $2.8 billion, analysts said.

Saks, which was created by the 1998 takeover of Saks Fifth Avenue by Proffitt's, tried to split itself in 2000, but the plan was derailed by the slump in valuations for luxury retailers following the Sept. 11 terrorist attacks.

Since then, luxury retailers have been on a roll and today are some of the most sought after properties in retailing.