Istithmar Buying Barneys for $825M

NEW YORK – Ending months of feverish negotiation and even more speculation, Dubai-based private equity house Istithmar said late Friday that it had agreed to acquire Barneys New York from Jones Apparel Group about $825 million.

Barneys operates 14 Barneys stores, with flagship stores in New York, Beverly Hills, Chicago Boston and Dallas, as well as 14 Co-op units and 13 outlet stores. It will open a Barneys store in San Francisco in September and a Co-op in New Jersey at a date still to be determined.

Founded in 2003, Istithmar is owned by Dubai World, which is owned by the government of Dubai. It’s invested in over 30 companies during its brief history and acquired Loehmann’s for $300 million last July.

“This investment will further our continued focus on the retail sector,” said David Jackson, chief executive officer of Istithmar. “We believe that we will be able to accelerate the growth of Barneys’ business by leveraging our experience in the sector and other investments worldwide.”

Howard Socol, president and CEO of Barneys, commented, “The execution of our growth strategy over the past few years and the hard work and dedication of our talented employees has increased the value of our company and made Barneys attractive to Istithmar. This transaction further enhances our ability to develop our brand and grow our business.

“Working with Istithmar, we look forward to continued expansion of our flagship, Co-op and outlet concepts to help us realize the considerable untapped potential of the Barneys brand,” Socol concluded.

Jones acquired Barneys in November 2004 through the acquisition of the store’s stock for $294.3 million and an addition $106 million in funds for a tender offer of Barneys senior secured notes due in 2008. Although some expected Barneys to be sold for as much as $1 billion, the $825 million price tag will mean that Jones, under the leadership of CEO Peter Boneparth, will have more than doubled its money in a little more than 30 months.

Jones said Friday that the acquisition is expected to close during the third quarter. However, it left the door open for other offers, both for Barneys and for the entirety of Jones. Barneys is permitted to entertain unsolicited proposals for Barneys until July 22, with all due diligence to be completed by August 11. The company can also entertain proposals for all of Jones from others until August 11. If such negotiations were to result in a sale, Jones would be required to pay a termination fee of $20.6 million on or before July 22 and $22.7 million afterward.

The agreed upon sale, however, ends what have been nearly non-stop talks to sell Jones or Barneys. Jones took itself off the auction block last August, but reports of Istithmar’s interest in Barneys have persisted for more than two months.

Peter J. Solomon and Citi acted as mergers and acquisitions advisors to Istithmar, and Citi will provide financing for the acquisition and take an equity position in Barneys.

Upon consummation of the Barneys divestiture, Jones would return to a business model dominated by wholesale brands and their affiliated retail operations. Among its major brands are Jones New York, Evan-Picone, Norton McNaughton, Gloria Vanderbilt, l.e.i., Nine West and Anne Klein.

Rumors of the sale to Istithmar had swirled around the world markets all day Friday, but were confirmed after the close of the equity markets in New York. Shares of Jones ended the New York Stock Exchange session at $28.78, up $0.42 or 1.5%.