February 11, 2009

(BN) Barneys Buyers Said to Offer Half 2007 Sale Price as Dubai Seeks Cash

Barneys Buyers Said to Offer Half '07 Price as Dubai Seeks Cash

Feb. 11 (Bloomberg) -- Barneys New York's owner, Dubai's Istithmar World PJSC, may sell the luxury retailer for less than half what it paid two years ago as the state-owned fund seeks to raise cash to meet debt payments.

Barneys, which Istithmar bought for $942.3 million in 2007, may fetch $350 million to $600 million, according to four people familiar with potential bids. Even in that price range, a surge in retail bankruptcies, falling luxury sales and frozen credit markets are muting interest, the people said, declining to be identified because the talks are private.

"It's a buyers' market," said John Guy, a fashion and luxury analyst with MF Global Securities in London. "The fact that luxury-goods stocks have fallen more than 30 percent in the past year is also going to weigh on expectations."

Dubai and its state entities borrowed $80 billion to finance the emirate's transformation into the Persian Gulf's banking and tourism hub. It's now being stung by a drop in both real-estate values and the price of oil, which fuelled the region's growth.

The government's Dubai World owns both Istithmar and real- estate developer Nakheel PJSC, which needs cash for debt maturing this year, according to a person familiar with Dubai World. Nakheel sold $3.52 billion of Islamic bonds in December 2006 that mature in 2009, Bloomberg data show.

Istithmar, which managed more than $10 billion as of last year, also owns 20 percent of Canadian circus troupe Cirque du Soleil and a majority of Gulf Stream Asset Management LLC.

Expansion Stymied

Barneys, an 86-year-old retailer that sells fashions by designers from Balenciaga to Manolo Blahnik, was stymied in its international expansion as credit markets evaporated and luxury consumers retrenched. It operates 13 outlets and 18 lower-priced CO-OP stores as well as nine Barneys department stores in cities including New York, Beverly Hills, Seattle and Chicago.

Istithmar World's Dubai-based media consultant, Nicholas Nesson, said the fund has no comment. Reuters reported Feb. 8 that Dubai World Chairman Sultan Ahmed bin Sulayem said the fund hasn't sought buyers for Barneys.

Sulayem didn't answer his mobile phone when called for comment yesterday. Sana Maadad, a Dubai-based spokeswoman for the company, said Sulayem wouldn't comment further.

The yield on the three-year Islamic bond issued by Nakheel Development Ltd. soared to 41.85 percent this month on concern the developer's finances were getting squeezed.

Property, Luxury Slump

Residential property prices increased fourfold in the last five years in Dubai, helped by the global credit boom and new laws allowing foreigners to own property. The credit crunch has since cut off its state entities from borrowing. Dubai, the second-largest of the United Arab Emirates, started work on the world's tallest building and created islands shaped like palm trees during its boom this decade.

Any buyer of Barneys faces a crisis that luxury-goods billionaire Bernard Arnault calls the worst since the 1930s. In 2009, luxury sales may fall for the first time in a decade, consulting firm Bain & Co. estimates.

Founded by Barney Pressman to sell cut-rate men's suits in 1923, Barneys began building women's lines in the 1970s with the help of his grandsons, Gene and Robert Pressman. "We went to Paris and Milan and started buying designers like Armani, Alaia, Versace and Prada," Gene Pressman, 58 said in Feb. 6 interview. "We carried a jeans and designer mix that was unique."

The Pressman family lost control in 1998 and the company exited bankruptcy protection in 1999. It was bought by Jones Apparel Group Inc. for $294.3 million in 2004. Istithmar acquired Barneys from Jones in September 2007.

Istithmar has been working with New York executive-search firm Herbert Mines Associates in New York to find a replacement for Howard Socol, 63, who resigned as Barneys' CEO in May.

Socol, a former chairman of J Crew Group Inc., had been with Barneys since 2001. He oversaw expansion into flagship stores and CO-OPs nationwide, and sought brands that would distinguish Barneys from competitors Saks Fifth Avenue and Neiman Marcus Group Inc. Herbert Mines Chairman Hal Reiter declined to comment on the search.

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net Sara Gay Forden in Milan at sforden@bloomberg.net Haris Anwar in Dubai at hanwar2@bloomberg.net

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