Ron Burkle is Busy Looking to Buy

Discussion
Feb 04, 2010
George Anderson

By George Anderson

Ron Burkle and his Yucaipa Cos. have stakes in quite a
number of retailers, including A&P, Barneys New York, Barnes & Noble,
Scoop and Whole Foods. Recently, Mr. Burkle has been making headlines as he
has sought to buy bigger stakes in Barneys and Barnes & Noble.

In a public
letter to Barnes & Noble’s board last week, Mr. Burkle objected
to a “poison pill” provision adopted by the company designed to keep him from
raising his share in the company from its current 19 percent to 37 percent. The
provision sets up roadblocks to keep single entities from owning more than
20 percent of the company, although current members of the board make up blocks
greater than that amount.

Mr. Burkle specifically criticized Leonard Riggio,
chairman of the company, and Stephen Riggio, its CEO and vice chairman.

“The fact that the Riggio family
and other company insiders own over 37 percent of the outstanding stock, and
that over the past three years Len was allowed to increase his personal stake
by approximately 10 percent of the outstanding stock (to over 30 percent of
the outstanding shares), in my view shows that the board and its chairman endorse
two sets of rules: one for the Riggio family, and one for the rest of the company’s
shareholders.”

Mr. Burkle also criticized Leonard Riggio for selling his textbook
business to Barnes & Noble. The result was a reduction in the chain’s liquidity
while “burdening
the company and its shareholders with significant debt to finance that purchase.”

In
the case of Barneys, Mr. Burkle appears to be coming in with a lowball offer
to gain a controlling stake in the luxury retailer. According to a Wall
Street Journal
report, Mr. Burkle offered $50 million to acquire
an 80 percent share of the retailer.

The current majority owner of Barneys,
Istithmar World Capital, finds itself struggling with huge amounts
of debt after acquiring the luxury fashion merchant in 2007 for $1 billion.
Istithmar is reportedly not considering the offer.

“Our holiday performance
exceeded our expectations, and Barneys remains cautiously optimistic for 2010,” Vince
Phelan, chief financial officer at Barneys New York, told the Journal. “No
financial restructuring of the company is imminent.”

Discussion Questions: What
do you read into Ron Burkle’s push to gain greater share of Barnes & Noble
and Barneys? Would those companies be better off or worse with Mr. Burkle exerting
more control over them?

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4 Comments on "Ron Burkle is Busy Looking to Buy"


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Gene Hoffman
Guest
Gene Hoffman
11 years 3 months ago

Ron Burkle is an astute doctor to sick chickens. If he acquires a strong or controlling interest in Barneys or Barnes & Noble at a low ball price, he will improve or correct at least some of their problems and then peddle them off the “doctored chickens” at a profit.

Dick Seesel
Guest
11 years 3 months ago

It’s probably a good time to buy into the luxury segment after a period of depression and some prospects for stronger growth. Mr. Burkle will want to demonstrate that he has a credible growth plan for Barneys, however, since it has expanded in fits and starts over the past several years.

On the bookselling front, “be careful what you wish for.” Yes, there are market share gains to be made at the expense of Borders’ struggling bricks-and-mortar business…but B&N has entered the e-book fray just before Apple promises to turn this segment on its ear.

Carol Spieckerman
Guest
11 years 3 months ago

The recent trend toward partial ownership (Iconix with Ed Hardy, Best Buy’s partial investments in various platforms launched by others) makes me nervous. For retailers such as Barnes & Noble and Barneys, I’d like to see Mr. Burkle go all in and work some magic. Barneys past deals have felt more like vanity plays, so for them in particular, it would seem to be time to get serious about taking the venerable brand to the next level.

James Tenser
Guest
11 years 3 months ago

Like any good merchant, Mr. Burkle understands how to make money on the buy. With values at a low, he’s among the few investors with the liquidity to make offers on distressed retailers.

Even if he can’t make these retail concepts much more relevant to shoppers, he can tweak their performance metrics while he waits for the general stock market to recover. In two to three years, some windfalls may ensue.

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