Neiman Marcus Group, the luxury department store chain that recently filed for bankruptcy, is currently under pressure from one of its creditors, Mudrick Capital Management, to consider a potential sale or merger with its rival, Saks Fifth Avenue. Mudrick, holding a significant portion of Neiman Marcus’s debt, believes that combining the two retailers could create substantial value, estimated between $2.8 billion and $4.7 billion.

Mudrick argues that a sale or merger with Saks would result in better financial recoveries for Neiman Marcus’s creditors compared to the company’s current restructuring plan. By using the bankruptcy proceedings to permanently close overlapping stores and implementing cost-saving measures, the combined retailer’s earnings could be significantly boosted.

Hudson’s Bay Co, the owner of Saks Fifth Avenue, had explored the possibility of acquiring Neiman Marcus in 2017 but decided against it. However, sources familiar with the matter suggest that Hudson’s Bay remains interested in Neiman Marcus and has not ruled out the option of making a formal bid for the company.

Neiman Marcus CEO Geoffroy van Raemdonck stated in an interview last week that the company’s focus is currently on reorganizing and that a deal with Saks is not its top priority. However, he did not entirely dismiss the possibility. Neiman Marcus has already negotiated a debt-cancellation plan with most of its creditors, allowing senior lenders to gain control of the company.

For any alternative plans, such as a sale or merger, Neiman Marcus’s lenders, including Pacific Investment Management Corp (PIMCO), Sixth Street Partners, and Davidson Kempner Capital Management, would need to approve them. While PIMCO and Sixth Street declined to comment, representatives for Davidson Kempner were not immediately available.

Considering that conducting an auction could be time-consuming, especially when the company is already facing financial challenges exacerbated by the COVID-19 pandemic, exploring a potential sale may pose additional difficulties for Neiman Marcus. The company expects significant cash burn at least until the end of July.

Mudrick’s letter also raises concerns about other creditors potentially being constrained from advocating for a sale due to the restructuring support agreement they have signed as part of Neiman Marcus’s bankruptcy case. Furthermore, job security concerns and the private equity owners’ desire to move on from their failed investment in Neiman Marcus may impact any potential merger or sale.

The response of Neiman Marcus to Mudrick’s call for pursuing a sale or merger with Saks Fifth Avenue is yet to be seen. As the company continues with the bankruptcy proceedings, the decision-making process will involve discussions with creditors and other stakeholders, ultimately determining the future direction of the renowned luxury retailer.

Useful links:
1. “Neiman ‘Cactus’ Crumbles Under the Weight of $4.7 Billion Debt” – Bloomberg article providing more details on Neiman Marcus’s financial struggles.
2. “Exclusive: Neiman Marcus hires investment bank to explore possible bankruptcy filing” – Reuters article discussing Neiman Marcus’s hiring of an investment bank to evaluate potential bankruptcy options.