Standard & Poor’s has put Saks Inc. on its credit watch list and shares have fallen 6 percent, as bidders make moves to acquire the upscale retailer. The move was prompted by concerns over the impact of a takeover on the firm’s balance sheet. S&P anticipates that a new owner might take advantage of the company’s name to load on debt.
Concerns over the future role of Chairman and CEO Stephen I. Sadove have also arisen.
Starwood Capital expressed interest in the retailer Friday, pushing the stock price up and providing a counterpoint to Hudson’s Bay Col, which is also seeking to merge with the retailer. The price fall Monday reflected a growing concern over the implications of the moves.
Saks has a capitalization at the current stock price of $2.17 billion and a value including debt of $2.6 billion.
S&P analyst David Kuntz said, “The CreditWatch placement reflects our view that there is high likelihood that the company could be acquired by either a financial or strategic sponsor. Such a transaction could add a substantial amount of debt to the company. As a result, the company’s credit metrics, which are currently commensurate with the company’s ‘intermediate’ financial risk profile, would weaken.”
Saks debt is graded at BB by S&P, which reflects major uncertainties and risks.
The firm’s funded debt in May was $319.6 million, including its capitalized leases, senior notes, revolving credit facility, and debt and equity components of its convertible debenture.
Saks also owns a wide range of extremely valuable real estate, which, combined with historically low interest rates, may make it easy for the company to acquire debt. As one analyst put it, “the overall value of the acquisition cannot be lower than its real estate value.”
CEO Sadove spoke at Saks’ annual meeting last month about the firm’s omni-channel culture, and how it will prove to be a “longer-term winning strategy.” The company has stopped reporting internet sales, as the lines between bricks-and-mortar and digital have blurred.
The company is in a unique position, as a compiler of luxury brands. Luxury goods manufacturers are more willing to allow Saks to act as a showroom through their property and through its reputation, giving the firm a valuable base among an attractive consumer group, according to an analyst at Maxim.