Belk eyed department store buyer before deal with Sycamore Partners

Charlotte-based Belk considered selling itself to another department store chain and listing its shares on an exchange, before agreeing last month to a $3 billion deal with a New York-based private equity firm.

A securities filing Friday showed that certain board members were confident Belk could continue as an independent company until as recently as late July. Belk didn’t agree to sell to Sycamore until the firm raised its offer to $68 per share from $65.50.

Goldman Sachs, the investment bank hired by Belk, approached three possible “strategic buyers,” likely other department stores. But they ultimately backed out either because they didn’t see Belk as a logical fit, or because they thought it didn’t make sense financially to take on Belk’s real estate, according to the filing.

The company owns approximately half of its store properties.

Sycamore was one of 15 “financial buyers” – private equity firms – with whom Belk discussed possible deals, the filing said. Belk said it ultimately decided to explore an ownership change because of the challenges it faces in the fast-changing retail environment, including the technology investments needed to compete with larger, national department stores.

According to the filing, Sycamore will put $658.8 million into the deal, while some of Belk’s executives, including Chief Executive Officer Tim Belk, are contributing $26.2 million in stock. The rest of the purchase price will be borrowed from banks. The filing indicates the deal could close November 30.

Here are some of the key milestones in the deal, according to the filing:

▪ In September 2014, the department store chain’s senior management team began to evaluate “strategic alternatives,” including listing its stock on a common exchange or selling the company.

▪ During a special meeting in November 2014, Belk’s board of directors “expressed confidence in our company’s ability to continue to operate as an independent company” but still said the company should explore other options.

▪ In a two-day retreat later in November, representatives of Goldman Sachs presented Belk a list of unidentified potential strategic buyers that might be interested in the company. In Belk’s case, “strategic buyer” refers to another department store chain, analysts say, who would blend the two businesses together.

At the time, Belk’s board determined that if it decided to sell, the more profitable, less complex option would be the acquisition by a strategic buyer over a financial buyer.

▪ In January, the company officially hired Goldman as its financial adviser.

▪ During a February special meeting, Belk’s board reviewed Goldman’s list of strategic buyers that likely would be interested in and capable of buying the chain. Belk’s board decided that three strategic buyers would be possible and authorized Goldman to contact them.

▪ In early March, all three potential strategic buyers said they were no longer interested in acquiring Belk, either because they didn’t believe Belk was a strategic fit for their business or because they didn’t think it would be “financially advantageous to them to leverage the value of (Belk’s) real estate holdings.”

▪ Belk initiated discussions with 15 financial buyers, including Sycamore Partners, in early March about the possibility of buying the company.

▪ In April, two smaller potential strategic buyers emerged, offering to merge with Belk either through a leveraged buyout or a co-investor. Belk ultimately decided deals with either company wouldn’t be in its best interest because of their “relative smaller size and lesser financial strength,” and the “low probability of success of their proposed transactions.”

▪ On July 9, Sycamore Partners put in its initial offer to buy Belk for $65.50 a share, which would mean an enterprise value of $2.8 billion. Early reports of the deal in April had estimated the deal could be worth as much as $4 billion.

In its proposal, Sycamore also said certain members of Belk’s senior management team would remain with the company after the deal closed.

▪ Three other financial buyers didn’t submit offers, saying that in light of Belk’s “successful operating history and strong financial position,” they were uncertain of their ability to squeeze out more profits and make sufficient returns.

▪ In late July meetings, certain Belk family shareholders “expressed confidence” in Belk’s ability to operate as an independent company and said they were willing to enter into voting agreements only if Sycamore’s offer was acceptable to them.

▪ Sycamore Partners increased its proposed purchase price to $66.75 a share on July 21, to $67.50 a share on July 23 and to $68 a share on July 31.

▪ On Aug. 1, the Belk board determined $68 a share was the highest offer they would receive and continued negotiating terms until Aug. 23, when the board entered into the merger agreement.

This story was originally published September 18, 2015 at 10:05 AM with the headline "Belk eyed department store buyer before deal with Sycamore Partners."