Neiman Owners Rebuffed Overture for Saks Merger

Neiman Marcus Group Inc. spurned a recent proposal in which buyout firm KKR & Co. (KKR) would invest in Saks Inc. (SKS) and the two luxury retailers would merge, said people familiar with the matter.

Neiman, currently exploring a sale or public offering, declined the overture made earlier in May for a variety of reasons, including the proposed terms and the complexity associated with a such a deal, some of the people said. One of the people added that down the line, it's possible they could entertain the merger idea if the terms are compelling.

Neiman's private-equity owners, TPG and Warburg Pincus LLC, are focused on looking for outright buyers for Neiman or taking the retailer public, but aren't close to deciding what to do, they said.

It isn't clear who delivered the merger proposal to Neiman. KKR has been weighing an investment in Saks and considering the merits of merging the two. Bankers at Goldman Sachs Group Inc. (GS) are advising Saks on strategic alternatives, including a possible sale.

Neiman's owners bought it in 2005 for $5.1 billion in cash and debt.

They are wary of marrying Saks for a range of reasons, the people said. The merger proposal as envisioned valued their high-end retailer too low and could be hard to pull off with stores in overlapping markets and a trio of buyout firms involved in the negotiations, one of the people said. It isn't clear what value the proposal placed on Neiman.

The department-store chains, while both upscale retailers, have distinct identities that would need to be managed under a combined company. In addition, Neiman's owners are concerned the two overlap in some locations and could cannibalize each other, or that the less-profitable Saks could become a drag on a combined enterprise, the person said. In the most recent fiscal year, Neiman earned $140 million on sales of $4.35 billion, while Saks posted net income of $62.9 billion on $3.15 billion in revenue.

The ultimate roadblock to a merger, though, could be getting KKR, TPG and Warburg to agree on any deal. And companies with multiple private-equity owners can sometimes run into complications when the separate investors can't agree on how to navigate difficulties that arise.

--Suzanne Kapner counributed to this article.

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