Gene Marcial's Stock Picks June 5, 2009, 8:03PM EST

Marcial: Is Saks a Takeover Target?

Shares are perceived as marked down, and the value of its real estate holdings is said to be about $1.3 billion. That could make lots of companies covetous

http://investing.businessweek.com/services/charts/chart.asp?sym=SKS&d=365&w=600&h=300

Saks Inc.—52-week price

By Gene Marcial

BW's Gene Marcial

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With most retailers on the ropes because of the economic downturn and financial meltdown, luxury department store operator Saks (SKS) isn't looking so upscale these days. Wall Street has been particularly downbeat on companies catering to the wealthy.

Even so, several investment pros are turning upbeat on Saks, whose stock has edged higher, to 3.75 on June 5 from a dismaying low of 1.50 on Feb. 20. True, the recent price rise still leaves the stock well below its 52-week high of 13.11 on June 4, 2008, but some unfazed bulls predict the stock could rebound to 10-11 a share in 3 years based on a nascent economic recovery.

Furthermore, the stock may fetch an even higher value, they argue, because of the possibility that Saks could end up a takeover target.

"It is very possible that Saks could attract buyout interest from larger companies not only because of its underpriced stock but also because of the hidden value of its real estate assets," says Mark Boyar, president of Boyar Asset Management, which has accumulated shares.

On that basis, he says, lots of companies should covet Saks, which owns outright 29 of the 53 Saks stores it operates, including its flagship Fifth Avenue store in New York and the one in Beverly Hills. Boyar figures the real estate properties it owns are worth about $1.3 billion. Given its property holdings and widely recognized brand, "we think Saks has value substantially above current levels," says Boyar.

Moreover, he adds, Saks' long underperformance should eventually attract other companies in the industry that may feel they could do a better job of managing and extracting handsome profits from the beleaguered chain.

Slim's Pickings

Right now, some big investors who are aware of Saks' potential value in an economic recovery, enhanced by the value of its real estate assets, have already bought into Saks, notes Boyar.

Saks' biggest stakeholder is Inmobiliaria Carso, a company owned by Mexican billionaire Carlos Slim Helú, who now owns a 17% stake. Boyar believes Slim may have something up his sleeve regarding Saks. Another significant holder is Diego Della Valle, chairman of Tod's Group, an Italian maker of luxury merchandise, including shoes and handbags, which may also be interested in Saks, says Boyar, On May 28, Tod's Group's CEO told Bloomberg that its stake in Saks "is a strategic holding for the Della Valle family."

Meanwhile, Fidelity Investments bought more than 3 million Saks shares as of Apr. 30, raising its total holdings to more than 2.5%, according to Bloomberg.

There was some takeover buzz surrounding Saks in October 2007 when Icelandic investment firm Baugur Group disclosed in an SEC filing that it had the right to acquire 8.5% of Saks stock, and that it would like to explore the possibility of making a joint bid for the company with Dubai-based Landmark Group, which owned a 1.2% stake. But the global financial crisis apparently put a damper on such a move. A Saks spokesperson told BusinessWeek no such bid has happened. She declined to comment further about speculation on the subject of buyouts or takeovers.