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Amazon is an investor in the deal, as the giant e-tailer aims to expand its luxury foothold.

What’s the fallout from the Saks-Neiman Marcus combination?

After a years-long pursuit, and endless speculation, Richard Baker’s Hudson’s Bay Co. has reached a definitive agreement to buy the Neiman Marcus Group for a total enterprise value of $2.65 billion, bringing the Dallas-based luxury retailer together with the New York-based Saks Fifth Avenue.

“I’m very excited. We’ve worked on this for over a decade,” Baker, HBC’s executive chairman and chief executive officer, told WWD on Wednesday evening, confirming earlier media reports that day on the deal. “We’ve had many discussions to buy Neiman’s at much larger numbers. It was too expensive before. It didn’t make sense. The pandemic happened. Neiman’s went bankrupt, but we finally got to a point where we were able to come to terms and do what we think is the right thing for everyone.”

In a digital age twist, Amazon is an investor in the deal, as is private equity giant Apollo as well as Salesforce.

Upon the close of the transaction, HBC will establish Saks Global, a combination of luxury-oriented retail and real estate assets, including Saks Fifth Avenue, Saks Off 5th, Neiman Marcus and Bergdorf Goodman, each of which will continue to operate under their respective brands.

Marc Metrick, currently CEO of Saks, will be CEO of Saks Global.

Baker said that he was not ready yet to discuss other management changes or structure. “We will be surveying and understanding all the talent that exists in all three businesses to put together a best-in-class team,” Baker said, referring to Neiman Marcus, Bergdorf Goodman and Saks.

Baker would not comment on the future of Geoffroy van Raemdonck, CEO of the Neiman Marcus Group. There is some question whether he will be part of Saks Global.

According to Baker, Saks Global generates $10 billion in sales, with Saks accounting for about $6 billion in sales and Neiman’s, $4 billion. He also said that Neiman’s volume has declined from 2013, when it generated $4.9 billion in sales at the time of its $6 billion purchase by Ares Management and the Canada Pension Plan Investment Board. In 2013, Saks Fifth Avenue generated $3 billion in volume, he said. Neiman’s went in and out of bankruptcy in 2020, through a debt for equity swap with Pimco, Davidson Kempner Capital Management and Sixth Street.

Based on the $6 billion purchase price in 2013, and very recent speculation that the price tag on Neiman’s would exceed $3 billion, it appears that Saks, at the $2.65 billion price, got a good deal. Baker would not comment on that, though he has a reputation for never overspending to acquire retail.

Saks Global will also include HBC’s U.S. real estate assets and Neiman Marcus Group’s real estate assets, creating a $7 billion portfolio of retail real estate assets in top-tier luxury shopping destinations. Ian Putnam, currently president and CEO of HBC Properties and Investments, will become CEO of Saks Global Properties and Investments. Metrick and Putnam will report to Baker, who becomes executive chairman of Saks Global.

Also, HBC’s Canadian business, which includes TheBay.com, the Hudson’s Bay department stores, and $2 billion in real estate, will be recapitalized and stay separate from Saks Global, with “significantly reduced leverage and enhanced liquidity,” the company said.

The purchase price is expected to be funded by a combination of equity capital from new and existing. shareholders and debt. Amazon will work with Saks Global to “innovate on behalf of customers and brand partners following the close of the transaction,” HBC said. That could involve logistical and digital upgrades.

The Rhône Capital private equity firm and affiliated investment entities continue as the active lead investor in Saks Global. Global software investor Insight Partners, an investor in Saks.com, will be a shareholder in the new company. Salesforce will also become an investor at closing.

In addition, HBC has secured a $1.15 billion fully committed term loan financing from investment funds and accounts managed by affiliates of Apollo, and a $2 billion fully committed revolving asset based loan facility from Bank of America, the lead underwriter, Citigroup, Morgan Stanley, RBC Capital Markets, and Wells Fargo.

“The transaction deleverages the combined enterprise while ensuring that Saks Global, on a pro forma basis, will have significant liquidity,” HBC said in its statement on the deal.

Saks and Neiman’s have been in talks to merge many times over the years, but the latest negotiations began last summer.

As recently as two weeks ago, sources said the price tag on Neiman’s was $3.1 billion, but at least some of the financial players around the deal were worried about the marriage of two retailers that are still looking to find their footing in a challenging retail climate.

One source said Apollo wanted a coinvestor in the deal to “really pony up and stand side by side with them” — and that’s the role Amazon ultimately played.

The deal would seem to give the e-commerce giant a new foothold in luxury fashion, a space that’s been hard for the “everything store” to navigate despite the launch of the Amazon Luxury Stores platform dedicated to high-end style. However, many observers question whether major luxury labels that sell to Saks and Neiman’s will be willing to have Amazon carry their products since they have resisted the e-tailer’s overtures for years.

“I think it’s their way to try to get into the luxury space and legitimize their entry into luxury,” the source said of Amazon’s involvement.

Chatter over a marriage of the two luxury retailers went into overdrive when HBC bought Saks Fifth Avenue 11 years ago, and Baker instantly made no secret of the fact that he wanted to add the Neiman Marcus Group to the portfolio and create a U.S. luxury retail empire.

There’s a case for putting the two together into one group.

First and foremost, millions of dollars in cost savings would be attained by centralizing and eliminating duplicative functions, such as accounting, planning, human resources, legal and distribution facilities. There could be one online buying team for both retail brands, and further consolidations and savings could involve closing some stores and reducing rents. Ultimately, the headcount could shrink by several hundred, if not by thousands.

But when asked about the possibility of consolidations, Baker replied, “We are not planning on closing stores, or rebranding. We are planning on using our combined resources to better serve customers, for better personalization, better functionality online, to take advantage of AI, and bring more tools to better service our customers. Neiman Marcus has a tremendous sales culture and tremendous stores with fantastic productivity. We have always admired that. So this is a great opportunity.

“It was a shame that, in the past, investment in Neiman’s was not done as robust as it should have been. But at Saks, we spent over $500 million renovating stores and $500 million investing in our digital business. No one in our category of retail has done anything close to this. We are investors in business.”

Secondly, there would be a sharing of data, best practices, management talent and a common customer base. Merging loyalty programs is a possibility. For example, using each retailer’s credit cards to shop could earn points valid at both Saks and Neiman’s. Or spending enough at either store could lead to access to invitation-only events at both Saks and Neiman’s.

Third, there could be a greater differentiation between Saks and Neiman’s, and reduced overlap of merchandise, which is extensive. A former executive at Bergdorf Goodman, which NMG owns, estimated that among the true luxury brands, there’s been about 90 percent overlap. Saks already emphasizes a wider range of categories and price points and has been more aggressive online with the split of the retailer into the online operation Saks and its brick-and-mortar business Saks Fifth Avenue, while Neiman’s has said it is refocusing on its wealthiest customers.