Could Hudson's Bay Be Interested in Both Neiman's and Saks?

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Although Hudson's Bay Co. was ultimately successful in its bid for Saks Fifth Avenue, it turns out there was another bidder engaged in the process until just last week: fellow department store giant Neiman Marcus.

Neiman has been exploring options to go public for a while now, and acquiring Saks, a publicly traded company, would have been a roundabout way to do that. Apparently the offer was serious enough that Saks entertained it until the last minute, when Hudson's Bay ultimately emerged as the winner. Saks is said to have ultimately rejected Neiman's bid because of fears the deal would be held up by an antitrust investigation by regulatory authorities; the prospect of Saks being acquired by a Canadian company with a small, mostly Northeastern U.S. footprint raised comparatively fewer antitrust hurdles. But now that Neiman's interest has become public, and given that Hudson's acquisition spree is not showing any signs of slowing, one interesting option remains on the table: Hudson's acquiring, at some point in the future, Neiman Marcus. The resulting company would have annual revenues of more than $11 billion.

Hudson's acquisition of Saks makes a lot of sense for the Canadian company. Lord & Taylor, which it owns, is on the smaller side for a department store chain, and mostly concentrated in the Northeast. Saks gives Hudson's a truly national chain. And the deal gives the company access to a different customer without cannibalizing existing sales: Saks Fifth Avenue is seen as a higher-end destination than Lord & Taylor, and Off Fifth gives Hudson's a prominent discount chain, too.

The prospect of a merger between two direct rivals, Saks and Neiman Marcus, has fewer obvious upsides. Here's Women's Wear Daily's analysis:

The virtues of a Neiman's and Saks merger have been long debated in the industry. Some experts believe there is a lot of logic to it, considering the possibilities for synergies, consolidations, increased buying clout and sharing best practices. Others say there is too much geographic and merchandise overlap between the two luxury chains and that the store cultures are different. Wall Street sources said Tuesday that it was highly probable that Neiman's would have made another attempt at Saks given the $16 share price HBC has agreed to pay for the retailer, which some believe was not high.

If Hudson's Bay were to acquire Neiman Marcus, it wouldn't happen overnight. The $2.9 billion deal for Saks required Hudson's to take on a significant debt load, and it might need a few years to pay that off and fully merge Saks into its own business.

— Jenna Sauers

· Hudson's Bay Faced Rival in Bid for Saks [WWD]