Belk executives say they don't expect customers and employees to see big changes from the deal announced Monday to sell the department store chain to a New York private equity firm for $3 billion.
No store closings or layoffs are planned at the nation's largest family-controlled department store, which operates local stores at Hamilton Place and Northgate malls in Chattanooga, Bradley Square Mall in Cleveland, Tenn., the Walnut Square Mall in Dalton,Ga. and on Decatur Pike in Athens, Tenn.
The buyer of Belk, Sycamore Partners, supports the company's brand and merchandise offerings, CEO Tim Belk said in an interview. The headquarters will remain in Charlotte.
"The Belk that (customers) love is not going to change," Belk, who will remain as CEO, told The Charlotte Observer. "We're going to continue to build on the foundation we've put in place."
A deal for Belk had been expected since April when the company said it was exploring a possible sale, and Sycamore had emerged as the possible buyer last month. The sale would end local control of the 127-year-old retailer that began in the nearby city of Monroe and grew to become one of Charlotte's iconic companies.
Analysts said the sale is an attractive deal for the Belk family, which controls more than 70 percent of the company's stock. But Sycamore is making its first foray into the department store business at a challenging time for the industry. Belk is under pressure to compete with brick-and-mortar stores as well as online retailers.
The Belk store at Northgate Mall"This is perfect timing for the Belk shareholders, and terrible for the buyers," said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates Inc. "The department store sector is terrible. I cannot explain why the buyers wanted it."
Macy's and Kohl's, for example, both recently reported a slump in second quarter earnings as shoppers scaled back on traditional items like clothing and gravitated more to services and dining out.
"They say they won't have firings or close stores, but what will they do when the results are bad?" Davidowitz added.
Brian Hamilton, chairman of Sageworks, however, called the acquisition a "pretty good deal" for everyone involved.
"Sycamore is getting a solid company, with a proven track record of profitability, positive cash flow from operations, and consistent revenue. Belk is getting what appears to be a fair offer, valuing their company at 20 times their trailing earnings," said Hamilton, whose firm provides research on private companies.
The deal, which includes the company's debt, is subject to regulatory approval and is expected to close in the fourth quarter this year, according to a securities filing.
While Tim Belk will remain CEO, his brother, Johnny Belk, said in an interview that he will remain the company's chief operating officer through the end of January, but will then leave to pursue "other interests." It is unclear what he will do and who will assume the COO role.
SOUTHERN BRAND
Tim Belk said the company plans to grow by "executing our current strategic initiatives and undertaking new growth initiatives together with Sycamore," calling the transaction "an across-the-board win for our stakeholders."
Belk added that Sycamore Partners thinks the company's brand -- "Modern. Southern. Style." -- "has legs" and sees the position as something on which the company can capitalize. That means promoting certain brands that resonate with Southerners -- such as Lilly Pulitzer -- and growing popular private labels like Crown & Ivy women's apparel.
Stefan Kaluzny, Sycamore Partners managing director, said in a statement the firm has "great respect" for Belk's management team, employees, brand, store footprint and growing online presence.
"Belk is exactly the kind of investment we look for: An outstanding brand with a proven success formula and the potential for further growth," he said.
Sycamore has a portfolio consisting mostly of investments in specialty apparel companies including Aeropostale, Coldwater Creek, Hot Topic, Jones New York, Nine West Holdings and Talbots. The firm, which has more than $3.5 billion in capital under management, says its strategy is to partner with management teams to improve profits and the value of their businesses.
Mark Cohen, a director of retail studies and adjunct professor at the Columbia School of Business, said Sycamore Partners may see Belk as a place at which to boost sales of its other brands. For instance, when Sycamore Partners bought Jones New York, the women's accessories and clothing retailer, last year, it decided to close all 127 of the chain's brick-and-mortar stores. Belk carries Jones New York items.
"The consolidation of department stores has resulted in a lot fewer places to put products," Cohen said.
Neither Sycamore nor Belk would comment on the financial terms of the deal. Private equity companies generally fund big purchases in part with their own money but mostly with bank loans.
CEO Belk said Sycamore Partners hasn't laid out a timetable on what they want to do with the company next, such as holding an initial public offering or selling it to another buyer, though the typical time frame is five to seven years.
In the deal, Belk shareholders will receive $68 a share in cash for each share of Belk common stock they own, the company said. Although the stock doesn't trade on major exchanges, Belk's shares trade over the counter, and the company reports its quarterly results and other financial details like a publicly traded company.