Saks and Neiman Marcus Face Antitrust Hurdles With the FTC 

After years of rumors, back-and-forth talks and a rush of inventive fundraising, Richard Baker obtained his deal to purchase Neiman Marcus for $2.65 billion this month. 

However earlier than he can shut and mix Neiman’s with Saks Fifth Avenue to kind Saks World, he has to get the transaction previous yet one more impediment — the Federal Commerce Fee. 

And Baker’s hard-fought deal for Neiman’s has come collectively simply as FTC regulators have sharpened their deal with company dealmaking and style, the place Tapestry Inc. is now combating to maintain alive its $8.5 billion acquisition of Capri Holdings.

The mixture of Saks and Neiman’s — significantly because it’s being funded partly by Amazon and Salesforce — guarantees to change what’s left of the world of division retailer retailing. 

“Malls are a Nineteenth-century phenomenon struggling to outlive within the twenty first,” stated Susan Scafidi, founder and director of the Vogue Legislation Institute at Fordham Legislation Faculty. “Acquisition by Saks could also be one of the best ways for Neiman’s to keep away from becoming a member of the B-list of luxurious retailers which have disappeared over the previous a long time, together with Barneys, Henri Bendel and Bonwit Teller.”

Even so, regulators are anticipated to take a tough have a look at the deal. 

“The fading sepia tint of the division retailer enterprise mannequin, nonetheless, doesn’t exempt the sector from antitrust oversight,” Scafidi stated. “Antitrust enforcement is an FTC precedence for the time being, and a key lesson of the authorized problem to the proposed Tapestry-Capri merger is that the company is inclined to outline related market sector very narrowly.  

“If Neiman’s and Saks are arguably the one two actually luxurious brick-and-mortar shops left standing, even in a weakened state, the deal is prone to face vital skepticism,” she stated. 

An Anticipated Second Request 

Antitrust specialists say regulators are prone to not less than make a “second request” for extra info on the Saks-Neiman’s deal — an exacting course of that may take anyplace from eight months to a 12 months earlier than the FTC will determine to let the acquisition shut or to problem it in court docket. 

Whereas a second request might need as soon as been a distant concern, style and retail are actually very a lot on Washington’s radar. 

Tapestry signed its deal to purchase Capri in August, obtained a second request for extra info from the FTC in November and was then hit by a lawsuit searching for to cease the deal in April.

The Tapestry-Capri case activates the definition of the “accessible luxurious” market — and would a deal that introduced collectively Tapestry’s Coach and Kate Spade manufacturers with Capri’s Michael Kors put the mixed firm able to dominate that market. (The mixed firm would additionally personal the extra luxury-oriented Versace, Jimmy Choo and Stuart Weitzman manufacturers.)

Jeffrey Oliver, a companion at Baker Botts who earlier in his profession was a employees legal professional on the FTC’s Bureau of Competitors, stated regulators trying on the Tapestry-Capri transaction drew a “small circle” across the market of reasonably priced luxurious. 

“That’s the enjoying subject during which antitrust takes place,” Oliver stated. “How large or small do you draw these circles? We name them markets, however they’re simply form of circles during which you determine these merchandise are in.”

Everybody promoting items inside that circle are thought-about rivals. What that circle seems like within the case of Saks-Neiman’s remains to be anyone’s guess — exterior the FTC — however market definition is just not the one concern that antitrust specialists are watching as regulators assessment the Neiman’s buyout. 

“I’d say the probability of a really prolonged investigation may be very excessive, not solely since you’ve obtained number-one and number-two luxurious style retailers combining right here, but additionally since you’ve obtained Amazon within the combine now,” Oliver stated. “That completely complicates issues, partly as a result of it’s Amazon and there’s clearly no scarcity of skepticism of Amazon’s intentions within the federal authorities, but additionally as a result of it complicates the story as to why this deal ought to go ahead. 

“The deal was prone to get a second request even with out Amazon’s participation,” he stated. “However I feel with Amazon’s participation, it’s just about inconceivable to keep away from.”

Regulating Retail

Though style offers haven’t confronted many regulatory challenges within the current previous, retail is acquainted territory for the FTC, which earlier this 12 months sued to dam Kroger Co.’s $24.6 billion acquisition of the Albertsons Cos. Inc. on anticompetitive grounds. 

That case, bringing collectively two grocery retailer giants, would possibly converse to a “want” whereas the mix of Saks and Neiman’s may seem like the regulation of a “need,” however the authorities has the latitude to take all companies severely. 

“I do fear that the transaction goes to look extra like Kroger-Albertsons” when reviewed, stated Jonathan Lazarow, antitrust lawyer and cochair of Ambrose, Mills & Lazarow’s Company Group. 

“You would possibly say, ‘They’re savvy shoppers, they’re wealthy,’ however who’s going to get damage is the smaller rising manufacturers,” Lazarow stated. “Have they got monopoly-like powers? Are they capable of outline the market? I feel [the FTC is] going to return again and say, ‘Sure.’ To me, this can be a vital concern that must be addressed and I don’t understand how they’re going to do it. There’s solely so many designers on the market.” 

Simply as distributors will discover themselves with fewer decisions if Saks and Neiman’s merge, the retailers’ extremely expert luxurious salespeople and different workers would likewise see their choices slender. 

When it revealed the deal, the Baker-led HBC, which already owns Saks and plans to purchase each Neiman’s and Bergdorf Goodman, stated the deal would help each established and rising manufacturers. 

“For over 100 years, Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman have been deeply dedicated to serving to luxurious shoppers uncover the most recent style from established and rising designers,” the assertion stated. “By its improved ecommerce expertise and well-located retailer fleet, Saks World will assist rising and established manufacturers attain their goal clients.”

The corporate additionally stated that the mix would “provide worth and profession improvement alternatives to workers.”

Darrell Prescott, an legal professional and antitrust knowledgeable who has labored within the style trade for years, stated: “Usually in retail, antitrust issues can be resolved by simply promoting off shops and places the place they’re in shut proximity or they compete with each other or overlap. I don’t suppose it’s going to be that straightforward right here.”

Prescott stated the FTC would possibly select to put aside the difficulty of market definition that’s already being examined within the Tapestry-Capri case and pursue one other problem that “is predicated totally on the elimination of competitors between the 2 events. That’s a judgment name to be made by the prosecutors.”

Whereas there are such a lot of issues already altering in Washington — and way more could possibly be on the best way given the particularly divisive presidential election cycle — the regulatory equipment is already awhirl and the authorities are anticipated to begin trying right into a Saks-Neiman’s mixture earlier than the election. 

“In the long run, this is not going to be a query of the discretion of whoever populates the antitrust division at [the Department of Justice] or the competitors bureau on the FTC,” Prescott stated, “however a query of what a federal court docket will do with the case and the regulation. Regardless of efforts to make new regulation and revive previous regulation, the precedents haven’t modified enormously and they’re nonetheless on the books they usually’re nonetheless binding.”

Up till now, Baker’s dream of shopping for Neiman’s relied on financing and a few dealmaking chops. If the FTC challenges the acquisition, it can depend on a decide.