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Saks Evades Takeover Bid - For Now


Which may be better news than it seems.


On Friday, the New York Post reported that Saks (SKS) is unlikely to face a takeover bid from the Baugur Group, an international investment firm, in the coming year.

For those unaware, Baugur had expressed interest in the New York-based retailer as recently as a few weeks ago. Now, however, "tight credit markets and a poor economic outlook have made financing all but impossible at current prices."

Unsurprisingly, Saks' stock took a bit of pummeling on the news, dropping about 7.1% from the prior day's close, before recouping most of those losses to close down only a fraction on Friday.

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In any case, here's my take on the news:

1. It might actually be better for Saks shareholders for Baugur to be either uninterested in or incapable of following through on a takeover bid. Given that its stock is trading toward the lower end of its 52-week trading range, and that domestic retailers continue to struggle, I think it's pretty safe to say that it wouldn't have been negotiating from a position of strength.

2. It's better that such a deal (or talk of a potential deal) be nixed at the outset, rather than having a bid fall through because of financing issues.

3. Saks continues to have a great name, excellent locations and a long and storied operating history. In short, I think it may very well be able to fetch a better price down the line if it decides to hold talks with a potential suitor. But it's almost certainly better to wait for a rebound in retail before any such talks begin.

4. The downside: If the shares get pummeled at year-end because of tax-loss selling, or if retail continues to falter, shareholders could, I think, get restless and demand change. This, in turn, could perhaps give a potential acquirer some leverage.

Saks closed at $11.19, down $0.08 or 0.71%.

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No positions in stocks mentioned.

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