Barneys New York: the Toy Story with a US$900m price tag

Each week Arabian Business turns the spotlight on a leading company.

So what's the latest with Barneys? Could it be snatched from Dubai's Istithmar?

Well, it's on the cards. Japanese clothing company Fast Retailing has apparently made an unsolicited bid for Jones Apparel Group's Barneys New York, a chain of upscale department stores. The bid is understood to be around US$900m, whereas Istithmar's bid stands at US$825m.

So what happens now?

According to Jones, financial information will be provided and negotiations will commence as soon as possible with Fast Retailing. The Istithmar deal, however, remains in effect for the time being. Jones has the option to consider other offers for Barneys until July 22. Istithmar hasn't yet given any comments on the counter offer.

But if Jones terminates its Istithmar deal, wouldn't it have to pay some kind of compensation fee?

Yes, definitely. Jones will have to pay a US$20.6m break-up fee if the agreement is terminated before July 22, and US$22.7m if it ends the agreement after this date.

So when did Jones decide to sell?

Well, Jones owns not only Barneys but a variety of clothing, shoes and accessories brands such as Nine West, Gloria Vanderbilt and Jones New York. The company's owners had put Barneys on sale early in 2006, but couldn't find a suitable buyer. After months and months of talks, they finally announced the decision to sell Barneys last June.

Why did Fast Retailing go for Barneys?

Well, the Japanese company has apparently been interested in acquiring Barneys since last autumn. This purchase, if concluded, will be Fast Retailing's biggest to date and will represent a big step towards the company's plan to become a global player and expand outside of its home market in Japan. The acquisition will also boost Fast Retailing's revenue and enhance its geographic and market diversification.

So far, the company has 1800 specialty stores in over 12 countries worldwide.

How has Fast Retailing got the cash?

Good question. Last year Fast Retailing dedicated US$1.3bn to a bid for Hong Kong's Giordano International. When it gave up, that amount was set aside for future bids.

And if Jones turns down the new offer?

Fast Retailing is determined to expand abroad so if this deal doesn't come off it will still continue to look elsewhere. The Tokyo-based company plans to invest up to US$3.25bn on M&As over the next three years, in order to double its annual sales to US$8.1bn by 2010.

So what's so attractive about Barneys?

According to Goldman Sachs' analysts, Barneys New York had generated an estimated US$720m in sales during the fiscal year of 2006 while the retailer, managing 34 stores, is predicted to have earned an annual operating profit of US$46.8m.