NEW YORK - Neiman Marcus is the latest retailer to go belly up. The Dallas-based luxury department store is preparing to file for bankruptcy, a process the pandemic all but assured. Whether and how many high-end patrons return is a big unknown for anyone bailing them out. A deal offers the most value but least certainty.

Neiman Marcus was hobbling along even before the coronavirus halted shopping. The company’s revenue was already steadily declining after it took a dollop of leverage to close a 2013 buyout by Ares Management and Canada Pension Plan Investment Board. It is expected to file with about $5 billion of debt, according to a Reuters report.

Investor Mudrick Capital Management is pushing the company to make an auction a part of the process, Reuters reported. Hudson’s Bay, the parent of rival Saks Fifth Avenue, at one point entertained a union with Neiman Marcus. The Canadian firm has since been taken private in March and was eager to shop for assets. It licensed the storied Barneys New York name after the retailer went belly up.

Pinning a value on Neiman Marcus is a challenge, though. The retailer’s EBITDA was $344 million for the 39 weeks ending April 27, 2019, according to the last public filing. Annualize it and assume many but not all shoppers return. If Neiman’s EBITDA goes back to 90% its 2019 level by the end of the year, a generous assumption, the company is worth just $2 billion on competitor Nordstrom’s enterprise value to EBITDA of 5 times.

That’s a huge haircut to its debt. A buyer may whack a fifth out of its sales, general, and administrative costs, which made up about a quarter of its $4.9 billion in 2018 revenue, its last full reported fiscal year. That roughly $240 million in additional savings could boost its value well over $3 billion.

So it makes sense that an investor is pushing for an auction. The trouble is Hudson’s Bay – and any potential retailer looking for a deal – is likely crippled too. And trying to hazard where and when shoppers will come back is a huge risk. Mudrick can’t be blamed for trying. But running an auction process can add time, which the retailer may not have.

CONTEXT NEWS

- Neiman Marcus is preparing to file for bankruptcy, according to a Reuters article on April 27 citing sources familiar with the matter. An investor group that includes Mudrick Capital Management is challenging a $600 million financing package lined up by Neiman Marcus, according to the article.

- The challengers are offering $700 million in financing but want Nieman Marcus to conduct an auction, the article said.

(Editing by Lauren Silva Laughlin and Amanda Gomez)


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