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Amazon and Salesforce also expected to take stakes in newly formed company

Saks Fifth Avenue’s parent company is nearing a $2.65bn deal to buy its luxury department rival Neiman Marcus with the backing of tech giants Amazon and Salesforce, said two people with knowledge of the matter.

The deal, which follows months of complex negotiations, is set to combine two of the leading players in luxury retail under one roof and could buffer them from increased competition from other luxury behemoths such as LVMH, which owns brands including Dior and Louis Vuitton and increasingly sell directly to consumers.

Amazon and Salesforce would take minority stakes in the newly formed business, the two people said, an unusual foray by the tech giants into the luxury space. The leader of Saks’ ecommerce business, Marc Metrick, will join the newly formed company as chief executive.

The tie-up comes as luxury department stores, whose model relies on in-person sales at physical stores, grapple with shrinking market share. Shoppers now have options to buy directly through company websites, at brands’ own storefronts, or through e-retailers.

That pressure has sent several brands into financial distress: Neiman Marcus declared bankruptcy during the pandemic, along with Lord & Taylor. A tie-up between Saks’ parent company HBC, which also owns the Canadian department store Hudson’s Bay, has been speculated since Neiman Marcus emerged from bankruptcy later in 2020.

The newly formed business — to be called Saks Global — would be the biggest player in brick and mortar luxury storefronts, with about 75 main stores. Still, the new business will face fierce competition as customers flock directly to brands: LVMH has earned a market capitalisation of about $384bn.

HBC, which bought Saks more than 10 years ago, was financing the deal with a $2bn facility, one of the people said. Apollo Global Management was providing $1.15bn in debt.

The deal was first reported by The Wall Street Journal.

Japanese group’s top leaders seek ‘new investment activity’ after calls from hedge fund to return cash

SoftBank is determined to prioritise investments in artificial intelligence and has no plans for an immediate share buyback, despite pressure for a $15bn capital return programme from activist investor Elliott.

In an interview with the Financial Times, SoftBank’s chief financial officer Yoshimitsu Goto said that the best use of the company’s strengthened balance sheet was in the hunt for AI deals.

“We believe this is a time when new investment activity should be taking place that will be the basis for the future growth of SoftBank Group,” he said, while declining to comment on any specific exchanges the company had with Elliott. 

Elliott, which declined to comment, recently rebuilt a roughly $2bn stake and has been pushing SoftBank to announce a buyback as soon as its first-quarter results are released in August, according to people familiar with the matter. 

However, founder Masayoshi Son said at SoftBank’s annual general meeting last month that the group’s investments in the past — which included some disastrously large bets by its Vision Funds on start-ups such as WeWork — were just a “warm up” for its next stage in AI and described share buybacks as “small stuff”. 

Elliott has argued that buybacks would boost return on equity and narrow the substantial discount between the value of SoftBank’s asset portfolio and its market capitalisation, according to those familiar with its stance. Elliott also believes that the group has the balance sheet strength to return capital to investors and pursue AI deals at the same time.

SoftBank’s current loan-to-value ratio, which gives a sense of how much risk the group is carrying and is a key measure for Son, is at close to 8.5 per cent, a level Goto said was perhaps “too safe”. 

Goto did not rule out buybacks in the medium term — since shareholder returns remain an important part of his considerations and markets could change in the coming months — but said the short-term direction of SoftBank’s capital spending was set.

“We don’t need to be this safe and we need to take on more challenges,” said Goto. “This is why Masa is saying that now is the time to invest.” 

Elliott’s buyback push echoes its approach in early 2020 when it built up a stake of about $2.5bn in SoftBank.

SoftBank did eventually launch a buyback programme in the same year that it turned “defensive” and sold assets to reassure shareholders in the face of the Covid-19 pandemic. 

This time around, SoftBank is back on the offensive looking for AI deals that would support the company’s crown jewel, UK-based chip designer Arm — a plan that Goto said many investors he had spoken to accepted. 

The group’s share price is also up more than 75 per cent this year to record highs. 

However, support for both Son and Goto fell at the recent AGM.

Son, who owns 30 per cent of SoftBank shares, received 79 per cent of the vote, compared with 96 per cent the year before, after proxy adviser ISS recommended a vote against the billionaire because of “unfavourable return on equity performance”. Goto received 89 per cent, down from 98 per cent.

Son’s shareholding and its outsized reliance on large numbers of retail bond holders also afforded SoftBank protection from the demands of activists, said Goto.

“So while other companies may have a strong reaction to the word activist, we may not be the same as them.”

Goto separately underlined that SoftBank was ready to do “large-sized deals” and suggested power generation and data centres as two areas ripe for investment. However, the CFO repeated that he would protect his balance sheet by using project financing or non-recourse loans.

“Because Masa is thinking about such big pictures and the big solution, his movement may be slower than before,” cautioned Goto.

Deal making is starting to pick up. In May SoftBank led an investment of more than $1bn in UK self-driving car start-up Wayve, marking Europe’s largest AI deal to date. It is also in talks to buy UK chip designer Graphcore, according to people familiar with the matter.

The S&P 500 (+0.5%) and Nasdaq Composite (+0.9%) pushed further into record territory on this holiday-shortened session. The Russell 2000 (+0.1%) and S&P Mid Cap 400 (+0.3%) also closed with gains. The price-weighted Dow Jones Industrial Average (-0.1%) closed slightly lower than yesterday due to a decline in its top weighted component, United Healthcare (UNH 489.89, -8.35, -1.7%).

Solid gains in the mega cap space had an outsized impact on index gains, but many other stocks participated in upside moves. NVIDIA (NVDA 128.28, +5.61, +4.6%), Broadcom (AVGO 1729.22, +71.74, +4.3%), Tesla (TSLA 246.39, +15.13, +6.5%), Apple (AAPL 221.55, +1.28, +0.6%), Microsoft (MSFT 460.77, +1.49, +0.3%), and Alphabet (GOOG 187.39, +0.78, +0.4%) were standouts in that respect.

The action in some of the aforementioned names propelled the S&P 500 information technology sector to the top of the leaderboard among the 11 sectors, up 1.5% for the day. The materials (+0.8%) and utilities (+0.6%) sectors were also top performers.

The health care sector (-0.7%) saw the largest decline due to losses in UNH, Eli Lilly (LLY 898.10, -8.61, -1.0%), and others.

A drop in market rates created an upside catalyst for stocks. The 10-yr note yield is down nine basis points to 4.35% and the 2-yr note yield is down four basis points to 4.70%. The Treasury market will close at 2:00 p.m. ET.

This price action in Treasuries thus far is in response to this morning's weaker-than-expected economic data. Briefly, the ADP Employment Change Report reflected slowing growth in payrolls and the ISM Non-Manufacturing Index reflected a contraction in service sector activity (i.e. below-50 reading).

As a reminder, markets are closed tomorrow for Independence Day.

Nasdaq Composite: +21.2% YTD

S&P 500: +16.1% YTD

S&P Midcap 400: +4.9% YTD

Dow Jones Industrial Average: +4.3% YTD

Russell 2000: +0.5% YTD

Reviewing today's economic data:

Weekly MBA Mortgage Applications Index -2.6%; Prior 0.8%

June ADP Employment Change 150K (consensus 163K); Prior was revised to 157K from 152K

Weekly Initial Claims 238K (consensus 235K); Prior was revised to 234K from 233K; Weekly Continuing Claims 1.858 mln; Prior was revised to 1.832 mln from 1.839 mln

The key takeaway from the report is that initial jobless claims have kicked up a notch but continue to track comfortably below recession levels; however, it is apparent in continuing jobless claims that finding a new job after being laid off isn't as easy as it used to be, which is consistent with some slowing in the labor market.

May Trade Balance -$75.1 bln (consensus -$76.0 bln); Prior was revised to -$74.5 bln from -$74.6 bln

The key takeaway from the report is that there were declines in both exports and imports, signaling that trade demand overall was softer in May.

June S&P Global US Services PMI - Final 55.3; Prior 55.3

May Factory Orders -0.5% (Briefing.com consensus 0.3%); Prior was revised to 0.4% from 0.7%

The key takeaway from the report is that business spending dropped off in May, which is consistent with a slowdown in manufacturing activity that was seen in the advance report for durable goods.

June ISM Non-Manufacturing Index 48.8% (Briefing.com consensus 52.5%); Prior 53.8%

The key takeaway from the report is that it signals a contraction in activity in the nation's largest sector, which should reinforce the market's expectation that the Fed will start cutting rates before the end of the year.

Retail rivals strike $2.65 billion merger as they seek to gain scale against luxury brands

The parent of Saks Fifth Avenue sealed a $2.65 billion deal to buy rival Neiman Marcus, according to people familiar with the matter, creating a powerhouse in luxury retailing that seeks to hang onto wealthy shoppers—all with a little help from Amazon.com AMZN -1.21%decrease; red down pointing triangle.

The boards of both companies have approved the transaction and an announcement could come as soon as this evening, the people said.

The department-store chains had been negotiating for months and had explored a combination several times over the years. Both have struggled as some consumers spent less on pricey goods and fashion brands opened their own flagship stores.

The combined company would have about $10 billion in annual sales, the people said. Luxury behemoth LVMH Moët Hennessy Louis Vuitton, which owns Chanel, Louis Vuitton and dozens of other brands, had sales of about $94 billion last year.

Amazon would take a minority stake in the new company, which will be called Saks Global, and plans to provide it with technology and logistical expertise, the people said. Salesforce is another minority shareholder and would assist with the adoption of artificial intelligence. Saks already does business with both tech companies, so the transaction would deepen existing partnerships, one of the people said.

HBC, a holding company that bought Saks in 2013, is financing the deal with $2 billion it raised from existing investors, the people said. They include Rhône Capital, the Abu Dhabi Investment Council and NRDC Equity Partners, a private-equity firm run by Richard Baker, HBC’s executive chairman, and his son Jack Baker. Apollo Global Management APO -0.20%decrease; red down pointing triangle is providing $1.15 billion in debt financing.

Marc Metrick, the chief executive of Saks’s e-commerce business, will run the combined companies, the people said.

The deal is a bet that the companies will be stronger together than they have been apart. Neiman, which had been owned by various private-equity firms for years, filed for bankruptcy protection in 2020. It emerged later that year with less debt and new owners, including Pacific Investment Management Co., Davidson Kempner Capital Management and Sixth Street Partners.

The year HBC bought Saks, the retailer had sales of about $3 billion. Last year, sales were roughly $6 billion, the people said. Neiman Marcus had $4.7 billion in sales in 2013, according to securities filings. It has slightly less than that now, one of the people said.

Sales of luxury goods have slowed in recent years, after pent-up demand coming out of the Covid-19 pandemic fueled a spending spree. Inflation has taken a toll as well, particularly among aspirational buyers who have less ability to stretch their budgets. Bain & Co. estimates that luxury spending in the Americas fell 8% in 2023 compared with 2022, even as sales grew in Asia and Europe.

HBC, which also owns the Hudson’s Bay department-store chain in Canada, recently completed several transactions to shore up its cash. In one, it raised $340 million by selling real estate.

The merger comes as the pressure on department stores intensifies in the face of sluggish sales. Lord & Taylor, which HBC owned until 2019, filed for bankruptcy in 2020 and closed its retail locations the following year. It now operates online.

Macy’s is closing 150 stores and fending off activist investors. The family that controls Nordstrom is making a renewed push to take the company private.

At the luxury end, Saks and Neiman Marcus are dealing with suppliers who have gained significant clout in recent years. When the two chains were founded more than a century ago, they introduced European luxury brands to well-heeled American shoppers.

These days, brands are increasingly calling the shots. They sell directly to consumers with their own stores and websites and some are getting so big that they wield tremendous power. LVMH CEO Bernard Arnault has competed with Elon Musk for the title of the world’s richest person.

Gucci owner Kering last year bought a stake in Valentino, adding the Italian luxury label to a portfolio that also includes Balenciaga and Saint Laurent. And in the U.S., a proposed deal would put the Coach, Michael Kors, Kate Spade, Versace, Jimmy Choo and Stuart Weitzman brands under one roof, although the Federal Trade Commission has sued to block the merger.

As a combined force, Saks and Neiman would have a better chance of negotiating more favorable terms with large suppliers and would strip out duplicate costs.

There are no current plans to close stores once the deal is completed. There are 39 Saks Fifth Avenue stores and 95 Saks Off 5th discount stores. Saks.com operates as a separate business that is owned by HBC.

Neiman has 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores. There are eight malls that have both a Saks Fifth Avenue and Neiman Marcus store, according to Green Street, a real-estate research firm.

HBC has a history of investing in the companies it buys. It spent more than $500 million renovating Saks stores over the past five years as well as an additional $500 million upgrading its technology and digital footprint.

Record sea temperatures threaten catastrophic destruction across Caribbean

Hurricane Beryl became the earliest hurricane on record to develop into a category five storm, meaning its winds and sea surges could prove catastrophic, as warming oceans fuelled destruction across the south-eastern Caribbean.

Forecasters said it was expected to bring “life-threatening” winds and storm surges to Jamaica before hitting the Cayman Islands.

Mexico’s Meteorological Service on Wednesday issued a hurricane warning for the coast of the Yucatán peninsula from Puerto Costa Maya to Cancún ahead of Beryl’s expected arrival later this week.

Beryl made landfall on Monday on Carriacou, an island that is part of Grenada, as well as hitting St Vincent and the Grenadines, causing widespread damage and several deaths.

Simon Stiell, the head of the UN’s climate change arm who is from Carriacou, said his homeland had been “hammered by Hurricane Beryl”.

“It’s clear that the climate crisis is pushing disasters to record-breaking new levels of destruction,” he said, urging countries to set more ambitious plans to tackle global warming.

“This is not a tomorrow problem. This is happening right now in every economy, including the world’s biggest — disasters on a scale that used to be the stuff of science fiction are becoming meteorological facts, and the climate crisis is the chief culprit.”

The US National Hurricane Center said winds had reached about 157mph at its peak, before weakening slightly to 145mph. The drop downgraded Beryl to a category four storm, which still ranks as a major hurricane capable of causing “catastrophic” damage.

“Some weakening is forecast during the next day or two. However, Beryl is forecast to be at or near major hurricane intensity while it passes near Jamaica on Wednesday and the Cayman Islands on Wednesday night,” it said.

The Alliance of Small Island States, a group of about 40 low-lying countries threatened by rising seas across the Caribbean, Pacific, Africa, Indian Ocean and South China Sea, said the hurricane highlighted the urgent need for finance to help them deal with the effects of climate change.

While the “full extent of the losses and damages are yet to be ascertained, lives have been lost, homes have been ground to nothing, shelter, security, memories, history — all gone”, said Aosis chair Fatumanava-o-Upolu III Dr Pa’olelei Luteru.

In May, the US’s National Oceanic and Atmospheric Administration warned that there was an 85 per cent higher chance of an above average hurricane season in the Atlantic this year.

The agency said it expected 17 to 25 named storms bearing winds of 39mph or higher this season. Between eight and 13 of those storms were expected to become hurricanes with wind speeds of 74mph.

Noaa said the rise in storms was linked to a “confluence of factors” that favoured tropical storm formation, including record-breaking ocean temperatures, the expected shift to the naturally occurring La Niña weather phenomenon across the Pacific and reduced Atlantic trade winds that allowed hurricanes to grow in strength without the disruption of strong wind shear.

“Human-caused climate change is warming our ocean globally and in the Atlantic basin and melting ice on land, leading to sea level rise, which increases the risk of storm surge,” Noaa warned.

Beryl is the second named Atlantic storm this season, following Alberto in June. It is forecast to move north-west across the south-west Gulf of Mexico by Saturday, further affecting communities and economies in the region.

The president’s conversation is the first indication that he is seriously considering whether he can recover after a devastating performance on the debate stage in Atlanta on Thursday.

President Biden has told a key ally that he knows he may not be able to salvage his candidacy if he cannot convince the public in the coming days that he is up for the job after a disastrous debate performance last week.

The president, who the ally emphasized is still deeply in the fight for re-election, understands that his next few appearances heading into the holiday weekend — including an interview scheduled for Friday with George Stephanopoulos of ABC News and campaign stops in Pennsylvania and Wisconsin — must go well.

“He knows if he has two more events like that, we’re in a different place” by the end of the weekend, said the ally, referring to Mr. Biden’s halting and unfocused performance in the debate. The person spoke on the condition of anonymity to discuss a sensitive situation.

The conversation is the first indication to become public that the president is seriously considering whether he can recover after a devastating performance on the debate stage in Atlanta on Thursday. Concerns are mounting about his viability as a candidate and whether he could serve as president for another four years.

A top adviser to Mr. Biden, who also spoke on the condition of anonymity to discuss the situation, said the president was “well aware of the political challenge he faces.”

White House officials did not immediately respond to a request for comment.

Campaign officials were nervously watching polls, recognizing that bad numbers could fuel the crisis. A CBS News poll on Wednesday showed former President Donald J. Trump edging ahead of Mr. Biden since the debate with 50 percent to 48 percent nationally and 51 percent to 48 percent in battleground states.

Mr. Biden is slowly reaching out to Democratic elected officials and has a meeting with Democratic governors at the White House scheduled for Wednesday evening. He is also continuing to reach out to people he has long trusted and has told at least one person that he is open to the possibility that his plans to move on from his debate performance — and flip the focus back to his challenger, Mr. Trump — may not work.

Several allies of Mr. Biden, who has huddled with the family and advisers since the debate on Thursday, have underscored that the president is still in the fight of his political life and largely sees this moment as a chance to come back from being counted out, as he has done many times throughout his half-century career.

But he is also cleareyed, they said, about his uphill battle to convince voters, donors and the political class that his debate performance was an anomaly.