Bankrupt Neiman Marcus Group is expected to reorganize after filing for Chapter 11 protection last week — but one of its creditors thinks joining forces with rival Saks Fifth Avenue could be a better plan.
In a Tuesday letter obtained by Reuters, hedge fund Mudrick Capital Management LP asked NMG’s independent directors to consider combining with Saks. In the letter, Mudrick suggests that a Saks merger or acquisition would create a better financial position for Neiman creditors than a restructuring. The letter posits that the combination of Neiman Marcus and Saks would result in between $2.8 billion and $4.7 billion in value. The combined retailer’s earnings could be bolstered by NMG permanently shuttering at least 22 stores in nearby or overlapping locations to Saks as well as taking other cost-cutting measures, says the letter.
Neiman Marcus filed for Chapter 11 bankruptcy protection on May 7 following weeks of speculation. The Dallas-based department store chain, which is nearly $5 billion in debt, said it had secured $675 million in financing from creditors to keep operations going through the Chapter 11 process. NMG listed estimated assets of between $1 billion and $10 billion, versus estimated liabilities in the same range.
In recent years, Neiman Marcus has faced numerous challenges in its quest for profitability, including digital disruption and reduced foot traffic. In August 2018, the retailer announced a four-year transformation plan that has entailed investing in omnichannel and supply chain technology, as well as embracing the growing resale trend through a minority stake in consignment company Fashionphile. Last year, the chain was able to rework some of its debt and avoid filing for bankruptcy. It has also looked into various strategies for raising capital, including the potential sale or IPO of the MyTheresa site.
According to Reuters, Saks parent Hudson’s Bay Co. explored the possibility of a Neiman’s acquisition in 2017 but ultimately decided not to move forward. Saks has been the top performer for its parent, which went went private earlier this year after months of back-and-forth buyout proposals. In recent years, HBC has shed many of its less profitable businesses to focus on Saks, as well as the namesake Hudson’s Bay. It sold flash sale site Gilt to Rue La La in June 2018, and it let go of its Lord & Taylor business before the start of the 2019 holiday season.