The Wall Street Journal-20080215-Deal Journal - Breaking Insight From WSJ-com
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Full Text (567 words)Retail Giant Could
Awaken on Iceland
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Baugur Group Is Poised
To Go on a Buying Spree;
War Chest of $1.96 Billion
Icelandic private-investment group Baugur Group and its billionaire executive chairman are weighing three possible retail acquisitions, despite the credit crunch that has gripped the debt markets.
Executive Chairman Jon Asgeir Johannesson said in an interview that Baugur has set aside $1.96 billion for additional investments in the next two years. "There are a lot of things on the table," he said, referring to possible retail deals. "Our strategy is going after big companies rather than smaller ones." All told, Baugur has stakes in about 20 retailers, with more than 3,900 outlets in 35 countries and sales topping $19 billion. Baugur has an 8.5% stake in Saks Inc. and has been mulling a bid for the U.S. luxury department-store chain since October. A person close to the matter said Baugur views Saks as a vehicle for U.S. distribution of some of its high-end United Kingdom designer apparel brands.
Baugur also is reviewing its options for Moss Bros. Group, a British menswear retailer in which it holds a 28.5% stake. Moss has 150 stores under the Moss, Hugo Boss and Cecil Gee names. And Baugur recently raised its stake in Debenhams, a department-store operator with 141 stores in the U.K. and Ireland, to about 13.5%.
"We have a long-term view on things," Mr. Johannesson said. Before buying U.K. department-store chain House of Fraser in 2006 for $703 million, he said, "we waited two years." Baugur now is trying to move the chain more upscale. Baugur typically acquires companies in leveraged buyouts consisting of a third equity and two-thirds debt. The credit crunch will require "more equity to make deals happen," he said.
-- Vanessa O'Connell
A Self-Analysis
At Cerberus Capital
Private-equity giant Cerberus Capital Management updated investors on its two of its biggest acquisitions -- GMAC and Chrysler. The essential message: don't panic (yet).
After sketching the grim state of affairs with references to the "liquidity crisis," a "market panic" and a "widespread decline across all sectors," Cerberus boss Steve Feinberg and his co-founder William Richter address its highest-profile deals.
The bigger concern of the two: GMAC, the former lending arm of General Motors that finances billions of dollars worth of homes and cars. "We have significant concerns," they write in the Jan. 22 letter, reported by Bloomberg. "If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty."
The bad news: "There is risk that despite the huge declines that are already part of the current credit environment in the capital markets, things could get a lot worse." The good news? "We bought GMAC cheaply enough so that even with all the bad news . . . we still are in reasonable shape."
Cerberus is more optimistic about Chrysler. "We believe we bought the company very cheaply, and we do not need to be heroes to earn a good return on the investment," they write. Still, they worry about "significant risks" such as "an extraordinary automotive collapse," "an unusually deep recession" and "continued destructive decline of the credit markets."
Even if the two investments implode, the fund, they write, is "very diversified, its overall success does not depend on the future of GMAC, Chrysler, or any other single investment."
-- Peter Lattman
