TPG, Warburg in $5bn Neiman Marcus deal

The two private equity firms are taking private luxury retailer Neiman Marcus in a $5 billion deal, following a string of recent buyouts.

Private equity firms Texas Pacific Group and Warburg Pincus are acquiring upscale department store chain Neiman Marcus in a $5.1 billion (€4 billion) transaction, which will offer $100 per share of outstanding stock.

Neiman Marcus

The Dallas-based retailer specializes in luxury goods, with 37 stores across the country, as well as an established catalogue business, two Bergdorf Goodman stores in Manhattan and fashion labels like Kate Spade and Gurwitch Products. Neiman Marcus also has a credit card division, which will reportedly be sold before the sale is completed.

Neiman Marcus is joining the growing list of private equity deals involving large retail chains. Kohlberg Kravis Roberts, Bain Capital and Vornado Realty Trust bought Toys ‘R Us in a $6 billion transaction last March, while gadget retailer Brookstone and discount chain ShopKo have also recently been purchased in private equity deals.

In a statement, Kewsong Lee, a managing director at Warburg Pincus, said the private equity groups “believe strongly in the continued growth of the company.” Press reports have suggested the retailer will expand into new markets, including Seattle, and possibly develop the high-end Bergdorf Goodman line of stores.

Shares of Neiman Marcus’ Class A stock closed Friday at $98.32. In mid-day training Monday, the shares were down $5.55, or 5.64 percent, at $92.77. Shares of Class B stock, which closed Friday at $97.20, were down 5.16 percent, or $5.02, at $92.18. Both are traded on the New York Stock Exchange

It’s not Texas Pacific’s foray into the sector, as the firm purchased a majority stake in retailer J. Crew for $500 million in 1997. In 2003, Texas Pacific joined the Baroness Retail consortium, alongside CVC Capital Partners, to buy UK department store Debenhams for £1.7 billion ($2.9 billion; €2.4 billion).

The deal must be approved by shareholders, but is expected to close by 1 November, 2005.

Founded in 1993, Fort Worth, Texas-based Texas Pacific Partners has around $15 billion under management. Since 1971, Warburg Pincus has closed 10 private equity funds. Warburg Pincus Private Equity VIII closed in 2002 on $5.3 billion and the firm currently has $13 billion under management.