Just Who Are Those Guys?

By Bernard Baumohl

As an investment, the retailing industry has the look of a losing bet. In just the past few months, hard times or bankruptcy has befallen such legendary stores as B. Altman, Bonwit Teller, Bloomingdale's and Abraham & Straus. Yet this prominent list of casualties failed to dampen the bidding war that began last September when B.A.T. Industries of London decided to sell Saks Fifth Avenue, one of the most prestigious U.S. retailing chains. At least four potential buyers vied for the richly profitable company (estimated 1989 earnings: $111 million), which has 45 stores in such locales as Manhattan, Beverly Hills, and Palm Beach, Fla. When the winning bid of $1.5 billion was disclosed last week, the victor was Investcorp, a reclusive firm based in Bahrain that is becoming a powerful force in retailing.

B.A.T. was forced to sell Saks as well as the Chicago-based Marshall Field's chain as part of a strategy to fend off a hostile takeover bid led by Sir James Goldsmith, the Anglo-French raider. In an abrupt turnaround early last week, the takeover artist said he would drop his pursuit of B.A.T. But with the Saks sale already in motion and bids running high, the British company went through with the transaction two days later.

Saks' renown stands in sharp contrast to the relative obscurity of its new owner. Investcorp was started in 1982 by Nemir Kirdar, a U.S.-educated Iraqi who had worked for Chase Manhattan Bank, and Abdul-Rahman Salim Al-Ateeqi, a former Kuwaiti Finance Minister. The company's 12,000 shareholders, none of whom own more than a 0.5% stake, constitute a Who's Who of Middle Eastern tycoons and royalty. The firm's philosophy is to make large, friendly investments, which, so far, have been concentrated in the U.S. and Europe.

Investcorp posted profits of $52 million last year from holdings that include a 50% stake in Gucci, the leather-goods empire, as well as control of Color Tile, the largest U.S. floor-coverings retailer, and Carvel, the ice- cream chain. After taking over Tiffany in a friendly buyout in 1984, Investcorp took the jewelry chain public again within three years and made a profit of $100 million.

Investcorp is a breed apart from most other leveraged-buyout firms. Rather than relying on debt to finance purchases, Investcorp usually pumps a large amount of its own equity capital into the companies it acquires. Moreover, the firm generally adopts a hands-off approach to managing its holdings. While the cost of the Saks buyout may tempt Investcorp to push for higher profits, the Bahrain firm contends that it will be true to its unmeddlesome philosophy. "We are owners, not managers," said Savio Tung, a top officer. "We bid for Saks because we thought it was a great company, not because we wanted to change it."

With reporting by Aileen Keating/Bahrain