NEW YORK -- B.A.T Industries PLC said Wednesday it is selling its exclusive retail chain Saks Fifth Avenue for $1.5 billion to an international investment group with a majority stake in Gucci, the Italian fashion house.
'BATUS Inc., the U.S. holding company of B.A.T, has entered into a definitive agreement for the sale of its Saks Fifth Avenue subsidiary to Investcorp for about $1.5 billion,' the British-American conglomerate said.
Investcorp, which owns real estate and luxury retail stores worldwide, said the deal will be complete within 10 weeks. The company, which operates out of New York, London and Bahrain, will also assume an undisclosed amount of Saks' liabilities.
B.A.T described the record transaction in the depressed U.S. retail industry as 'properly capitalized' and said it will not place a heavy debt burden on Saks, which last year reported $1.2 billion in sales from its 45 outlets nationwide, including its Manhattan flagship store.
'This is not a typical leveraged buyout resulting in too much debt on Saks,' said Arthur Martinez, BATUS senior vice president, without disclosing the details of the financing.
'A heavy debt burden would make it difficult for Saks to operate according to its 66-year-old tradition,' Martinez said. 'We would not have agreed to turn the company over to someone who would trade it down to meet interest payments.'
Several leading U.S. retailers are facing serious financial problems stemming from highly leveraged acquisitions.
B.A.T said it chose Investcorp following a sealed-bid auction that closed Monday at noon. The British-American conglomerate said there were a number of other bidders for the luxury retailer, including a group led by Saks managers and backed by Tobu Department Store Co. of Japan.
'Saks' management presented a credible bid but Investcorp's offer clearly was better,' Martinez said.
Retail industry analyst Elizabeth Armstrong, with Prescott, Ball & Turben in New York, said B.A.T is getting a fair price for Saks, while the days of highly leveraged buyouts for retailers are ending.
'Based on market estimates, this certainly seems to be a very attractive amount for B.A.T,' Armstrong said. 'The amount of leverage used in retail acquisitions will decline. Leverage will continue, but not to the same degree as in the past.'
B.A.T, a diversified British-American conglomerate, announced last year it was putting its non-core businesses on the auction block to focus on its tobacco and financial services operations.
B.A.T's divestiture strategy was drawn in part to fend off a hostile $21 billion takeover attempt by an investment group led by James Goldsmith. The British magnate's bid collapsed Monday after one of his partners, Axa Midi Assurances, failed to secure Californian insurance regulators' approval for its targeted acquisition of another B.A.T subsidiary, Farmers Group Inc.
B.A.T has been so far successful in selling its prestigious U.S. retailing businesses. Last week, the company sold Marshall Fields, the 130-year Chicago-based chain for $1 billion. B.A.T also sold last month its Breuner furniture and rental subsidiaries, and is now seeking a buyer for Ivey's, a department store chain in the Carolinas and Florida.
Investcorp owns Chaumet, a major French jeweler, and has a 50 percent stake in Gucci, as well as interests in Tiffany & Co., the U.S. jewelry chain, and Carvel Corp., the ice cream franchise company.
The announcement sent B.A.T shares on the American Stock Exchange up 12.5 cents to $11.675 at midday trading. B.A.T earlier closed on the London International stock exchange up 6 cents to $11.28.
