Bargain Hunting at Saks Fifth Avenue

The financial turmoil in Iceland might seem like a distant concern for those nervously tracking Wall Street's daily gyrations, but there's at least one way in which the meltdown in the North Atlantic could create some very real problems on Fifth Avenue.

That has to do with the rapidly changing fortunes of Jon Asgeir Johannesson, the Icelandic playboy with '80s hair and a penchant for extravagant spending. Johannesson owns 8.5 percent of Saks Fifth Avenue through his retail investment group, Baugur, which also owns a variety of upscale British retailers.

Until recently, Johannesson had been talking about buying Saks outright. He had planned to raise the necessary cash by selling a stake in a Baugur to Stodir, an investment firm he also controls. Unfortunately, Stodir went bankrupt last week after Iceland nationalized Glitnir, a bank in which Stodir has a crucial stake.

So, given the state of things in Iceland, it's safe to say Johannesson is no longer a likely buyer for the luxury department store. But the potential consequences for Saks run even deeper than that.

Baugur appears to be on its last legs. Johannesson has appealed for help to British billionaire Sir Philip Green, owner of the Top Shop retail chain. He is considering buying some $3.4 billion of Baugur's debt (he's in Reykjavik at the moment trying to sort out a deal). Should Green buy up Baugur's debt, it may well mean that Johannesson loses control of the company.

What will become of Saks if Johannesson is forced to liquidate his stake? Shares of Saks are already down 48 percent in the past month, and falling, as an ever-deteriorating retail environment takes a great and greater toll on the luxury section.

Last week Saks announced that December sale store sales fell 10.9 percent, and that it expects the rest of the year to continue on much the same course.

The only glimmer of good news for Saks comes from a different foreign investor, this time on the opposite end of the United States. Carlos Slim, the Mexican billionaire, bought more than one million shares of Saks last week -- raising his stake to 17 million shares.

by Liz Gunnison

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