Saks IPO -2-: Some Question Long-Term Strength >SKS 05/22/1996 Dow Jones News Service
(Copyright (c) 1996, Dow Jones & Company, Inc.)
Steven Samblis , chief financial strategist for Samblis in Longwood, Fla., said he's avoiding Saks Holding Inc.'s deal - despite the strong opening premium.
Samblis said he has doubts about the long-term strength of the retail sector and retailing typically cools as the summer heats up, making this an odd time to take Saks public.
'This is a maverick offering,' Samblis said. 'It's interesting that Saks didn't wait until stronger earnings reports came out or something else that could validate this as a strong offering. I like to see money raised in an IPO used to expand - not to pay off debt. Eventually, I think the undertow of this offering will grab investors and sweep them out to sea.'
Some analysts question the wisdom of the company's decision to expand its Off 5th outlet stores, which they believe could undercut the full-line stores.
The Off 5th division sells goods at 40% to 70% below the price charged at Saks' full-service stores. The company now operates 19 Off 5th stores and plans to open about 14 more in fiscal 1996.
Saks' signature store on New York's Fifth Avenue accounted for about 22% of consolidated net sales in fiscal 1995, but many analysts said expansion into upscale markets across the nation offers the prospect of
solid, long-term growth.
Investcorp has turned around other companies and then launched successful IPOs. This makes Saks look like a winning bet to short-term investors.
Gucci's IPO was priced at $22 a share in October. The stock now trades at 69 3/4, just down from a high of 72 3/8. In the mid-1980s, Investcorp reportedly made about $100 million by backing a buyout of Tiffany &
Co. (TIF) and launching a successful IPO three years later. Tiffany's stock now trades at 76 1/2. The 52-week high is 78 1/4.
A group organized by Investcorp purchased Circle K Corp. (CRK),operator of a chain of convenience stores offering food, general merchandise and gasoline, under a bankruptcy plan. In March 1995, Circle K priced its IPO at $16 a share. The stock now trades at 31 3/4, eclipsing a 52-week high of 31 3/8.
But not all of Investcorp's deals have been winners. Color Tile has filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy code and in January announced plans to close 234 of its 621 stores.
Saks Holdings Inc.'s 16-million-share IPO includes 13.75 million shares sold by the underwriters and 2.25 million sold directly to a unit of Investcorp S.A.
There will be about 61 million shares outstanding after the IPO. Existing shareholders paid an average of $20 a share.
'Hot IPOs are good, but Saks is great,' said John E. Fitzgibbon, Jr., editor of The IPO Aftermarket for Securities Data Publishing.
(END) DOW JONES NEWS 05-22-96 11:59 AM |
