Jones withdraws from sale

American Jones Apparel Group has announced that the company is no longer for sale. "The board has concluded that at this time the best alternative to maximize long-term shareholder value is to continue executing on the company's strategic business plan," Jones chief executive Peter Boneparth said in a statement. The fashion group, which owns retailers like Barneys and Nine West, has seen profits slip during the past few years. The gross margin dropped from 36.89 percent to 36.07 percent between 2001 and 2005. Operating margins fell to 9.8 percent from 11.8 percent. The news that the sale would be discontinued caused shares to fall 1.6 percent. Financial sources told WWD that the sale fell apart after private equity firm Bain Capital bid $28 a share, while the Jones board expected $36. Sources say that Boneparth could chose to do a variety of things, including leading a leveraged buyout firm himself or selling the company to an equity fund for a lower price. Experts agree, however, that an acquisition would not be a good idea, especially because the pool of possible targets is dwindling due to consolidation in the market. Boneparth has said in the past that acquiring a company worth less than $100 million would not be worth it. "In our world, at that level, smaller deals just don't move the needle," he said at a WWD/DNR CEO Summit in 2003. Furthermore, the company would risk overpaying for deals. The aborted sale begs the question what will happen to brands like Barneys and Nine West. Interest in Nine West was significantly more than in Barneys.

Sources told WWD that Bain was worried about the lack of cash flow at Jones and about the high-yield market. Meanwhile, Jones has been addressing the cash flow problem by cutting staff and restructuring the business. These are, however, short-term solutions. The group plans to continue making staff cuts to curb costs and boost cash flow. Various sources have blamed the loss of the Polo license on Jones current struggles. However, consultant Emmanual Weintraub does not believe the company is in any real trouble and will survive to come out on top. "The important lesson is your brands have to stand for something," he told WWD. "They have to move more aggressively out of the middle tier into a more upscale marketplace."