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Monthly Archives: July 2013

Hudson’s Bay agrees to buy Saks in $2.9bn deal

From The Financial Times

Canadian retailer Hudson’s Bay Company has agreed to buy Saks for $2.4bn in an all cash deal, ending months of speculation on Wall Street surrounding the sale of the upmarket US department store. Under the terms of the deal, HBC will pay $16 a share plus debt, about 4.5 per cent higher than Saks’s $15.31 closing price on Friday. Including debt, the transaction is valued at around $2.9bn.

HBC plans to finance the purchase with $1bn of new equity, $1.9bn of senior secured loans and $400m of senior unsecured notes and available cash on hand.

The transaction brings together the namesake Hudson’s Bay, high-end department store chain Lord & Taylor, as well as the Saks Fifth Avenue brands, creating a company that will operate 320 stores in North America.

Under the terms of the agreement, there is a 40-day go shop period, during which Saks may seek bids from other suitors.

Richard Baker, chief executive of HBC, said the deal was as much about the acquisition of premier property assets – including Saks’ iconic Fifth Avenue flagship store in Manhattan – as retail.

“This acquisition will increase our growth potential both in the US and Canada, generate significant efficiencies of scale, add to our powerful real estate portfolio and deliver substantial value to our shareholders,” he said.

HBC plans to keep Saks as a separate unit headquartered in New York and introduce the Saks brand in Canada through the internet and other formats. Steven I. Sadove, the chief executive of Saks, added: “We are excited about what this opportunity and being part of a much larger enterprise can mean for the future of the Saks Fifth Avenue brand.”

Saks, which has a market capitalisation of $2.3bn, has seen a spike in its share price of almost 46 per cent in the first half of 2013 thanks to growing speculation of an impending buyout. Shares rose 3.5 per cent in premarket trading in New York on Monday. Meanwhile, HBC increased 2.2 per cent to C$16.85 in Toronto trading.

The deal comes less than two months after private equity firm KKR was said to be considering a bid for Saks, while rival department store chain Neiman Marcus publicly rebuffed talk of a merger between the two luxury retailers.

Talks surrounding the latter were said to be scotched after it became apparent that despite the clear logic of any department store consolidation, overlap in store sites and closure costs would have made any deal too costly.

The Qatar Investment Authority, a sovereign wealth fund which holds stakes in numerous luxury brands including Harrods, Valentino and Tiffany & Co., was also said to be interested in a possible bid.

The Ontario Teachers’ Pension Plan, one of Canada’s largest pension funds, will buy $500m of the new equity, while West Face Capital will invest $250m.

Saks’ sales have yet to recover from their pre-recession high. The retailer posted revenue of $3.15bn last year, short of the $3.28bn it posted in the year that ended in early 2008. Mr Sadove has been closing the chain’s underperforming branches. It now operates 41 namesake stores, compared with 54 in early 2007.

Saks was advised by Goldman Sachs, Morgan Stanley and Guggenheim Securities while Bank of America Merrill Lynch and RBC Capital Markets worked for HBC.

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Why Web Reviewers Make Up Bad Things

From The New York Times

It’s pretty clear exactly who writes fake positive reviews on the Web: friends or relatives of the author or the shop or restaurant owner, or sometimes the author or shop owner himself. The goal of fake positive reviews is to increase sales, and the reviewers are the ones who benefit, or want their friends to benefit.

But who writes fake negative reviews, denouncing stuff without any obvious reason? The usual assumption is that the perpetrators are competitors of some sort, hoping to get an edge on other novelists or chefs or innkeepers. But are there really so many nasty people in the world who need to get some slight advantage by tearing down the restaurant one block over? The question has been shrouded in mystery.

Until now. A fascinating new academic study sheds light on the fake negative review, finding not only that the source is totally unexpected but also that the problem is much bigger than a few malicious operators.

It turns out that competitors are not necessarily the ones giving one miserable star to products they did not buy or experiences they did not have. Customers do it — in fact, devoted customers.

This is hard to wrap your brain around, so first some background. The study was done by Eric Anderson of Northwestern University and Duncan Simester of the M.I.T. Sloan School of Management, using data from an unnamed apparel company that markets through catalogs, a few stores and a Web site. The company does not use third-party sellers and few of its products turn up on eBay, so it provided a relatively controlled experiment.

Registered customers wrote over 325,000 reviews in the study period. But for 16,000 of those reviews, there is no evidence that the customer bought the item. These reviews are on balance much more negative. (Could the items have been gifts, which could explain a higher level of dissatisfaction? No, the reviewers explicitly said they bought the items. The researchers were also able to rule out other possibilities, such as the negative reviews’ being attributable to differences among items or among reviewers.)

The researchers cannot say directly what the comments look like that accompany these reviews, because then it would be possible to do a Web search and identify the company. But Mr. Simester said they are something like this:

• I should have read all of the negative reviews before ordering. Please bring back the old style.

• I ordered this item over your Web site. Why is it that good designs are always changed? Please go back to the original.

• I am on a “Made in the USA” campaign and so am returning this item. Please stop importing.

The cranky customers are acting, the study concludes, as “self-appointed brand managers.” To put it another way, they are venting. The review forum gives them a simple and direct means of doing so: I hated this product, so listen to me.

As Mr. Simester put it in an interview: “Your best friends are your worst critics.” The study mentions in passing that Harley-Davidson’s customers were upset when the company introduced a perfume. They took it personally. The same phenomenon seems to be operating here and, perhaps, all over the Web, distorting the review process in a way never imagined.

The apparel retailer was somewhat alarmed to discover this was going on, Mr. Simester said. One possible solution is to allow customers to write reviews only if they have purchased the product. Or give customers easier ways to let their feelings be known.

For the rest of us, the rule remains the same: read reviews if you have no other source of information, but never place your full trust in them. Mr. Simester, who says he has never written a review himself, follows this philosophy.

The other conclusion is that behavior online is too easily taken as a mirror of reality when it is nothing of the sort. What seems to be the voice of the masses is the voice of a self-appointed few, magnified and distorted.

“For every thousand customers, only about 15 write these reviews — and one of them is writing negative reviews of products he hasn’t bought,” Mr. Simester said. “How surprised should we be that one out of a thousand people do something we have trouble understanding?”

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Neiman Marcus Files for IPO

From The FT

Neiman Marcus, the upscale US department store, has filed for an initial public offering as its private equity owners look for a way to sell the business. The retailer was acquired for $5.1bn in 2005 by TPG Capital and Warburg Pincus, whose ownership has extended beyond the typical five-to-seven-year holding period for buyout groups.

Read more…

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