Neiman Marcus close to changing private equity owners: sources

NEW YORK Sun Sep 8, 2013 7:13pm EDT

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NEW YORK (Reuters) - A consortium of Ares Management LLC and the Canada Pension Plan Investment Board is in advanced talks to acquire upscale U.S. retailer Neiman Marcus Inc from TPG Capital LP, Warburg Pincus LLC and Leonard Green Partners LP, two people familiar with the matter said on Sunday.

A deal for Neiman Marcus could be announced as early as this week and would mean that the company would not proceed with its plans for an initial public offering, the people said, asking not to be identified as the negotiations are confidential.

One of the people said the deal would likely value Neiman Marcus at around $6 billion, but cautioned that negotiations had not been finalized and that talks could still fall apart.

Neiman Marcus, Ares, TPG, Warburg Pincus and the Canada Pension Plan Investment Board declined to comment. A Leonard Green spokeswoman did not respond to requests for comment.

Neiman registered for an IPO in July after earlier talks with potential buyers, including sovereign wealth funds, failed to meet the price expectations of its private equity owners, people familiar with the matter told Reuters at the time.

The decision to pursue a sale to other private equity firms could underscore uncertainty by its owners over how the stock market would value Neiman, as well as a desire to monetize on their investment more quickly.

Last month, Neiman rivals Saks Inc SKS.N and Nordstrom Inc (JWN.N) each reported disappointing sales gains for the second quarter, raising concerns that even high-end shoppers were cutting back on spending.

Saks, which agreed in July to be sold to Hudson's Bay Co (HBC.TO) for $2.4 billion, as well as Neiman and Nordstrom, have largely stopped opening new department stores, instead focusing on their respective bargain outlet chains.

Neiman returned to its pre-financial crisis sales levels this year, reporting revenues of $4.5 billion in the 12 months ending April 27, up 6.5 percent from a year ago, and adjusted earnings before interest, tax, depreciation and amortization of $623 million.

REACHING THE LIMIT

The Dallas-based retailer, which operates 41 namesake departments stores, Bergdorf Goodman, as well as the lower-price outlet chains Last Call and CUSP, was taken private by TPG and Warburg Pincus in 2005 for $5.1 billion.

Buyout funds typically have a lifespan of ten years. Eight years of private equity ownership for a company is therefore close to the limit of how long funds usually hold investments, although their can ask for extensions from their investors.

TPG and Warburg Pincus contributed about $1.2 billion out of their funds as equity for the 2005 deal, according to regulatory filings. Leonard Green was among the co-investors that contributed an additional $220 million as equity.

With about $66 billion in capital under management, Ares is primarily a debt-focused investment firm which also engages in corporate buyouts. It managed about $9 billion of committed capital as the end of December through five private equity funds, according to its website.

Los Angeles-based Ares was founded in 1997 by Tony Ressler and John Kissick, both of whom worked as bond traders in the 1980s at Drexel Burnham Lambert and in 1990 co-founded investment manager Apollo Global Management (APO.N) with Leon Black, Marc Rowan and Joshua Harris.

The Canada Pension Plan Investment Board is one of the world's largest investors in private equity and manages a $181.5 billion investment portfolio of various assets aimed at generating returns to pay out pensions for 18 million Canadians.

The Wall Street Journal reported earlier on Sunday that Ares and the Canada Pension Plan Investment Board were in the final stages of negotiations to buy Neiman Marcus.

(Additional reporting by Phil Wahba in New York; Editing by Nick Zieminski)

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