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Original Source: FD (FAIR DISCLOSURE) WIRE
. Wes Card, Jones Apparel Group Inc., COO . Peter Boneparth, Jones Apparel Group Inc., President & CEO . Jeff Edelman, UBS, Analyst
. Brian McGough, Morgan Stanley, Analyst . Margaret Mager, Goldman Sachs, Analyst . Marie Driscoll, S&P Equity Research, Analyst . Brad Stephens, Morgan Keegan, Analyst . Frank Henson, Bear Stearns, Analyst . Ted O'Connor, Cooke & Biehler, Analyst
JNY reported on 06/22/07, that the Co. announced the sale of Barneys as it released to Istithmar for $825m in cash, subject to certain purchase price adjustments.
A. Key Data From Call 1. Transaction cost = $825m in cash.
S1. Transaction Details (P.B.) 1. Highlights: 1. On 06/22/07, JNY announced the sale of Barneys as the Co. released to Istithmar for $825m in cash, subject to certain purchase price adjustments.
2. JNY outsized two things: 1. Really wants to recognize the valuable contribution of the Barneys employees and their senior management Howard Socol in particular. 1. During the time that they have been part of JNY, they have obviously been able to achieve wonderful results for the Co. and demonstrated clearly a superior ROI. 2. JNY purchased this in Dec. 2004 for $400m and is selling the business on 06/22/07, obviously it is a testament to their capabilities. 2. Transaction Details: 1. JNY will report a net gain of approx. $290m. 2. In light of available tax benefits, the net cash proceeds from the transaction should be approx. $770m.
3. JNY sees in Barneys a nice growth asset that created significant value for itself. 1. This was an asset that was going to require materially more capital investment to have a continued growth and an operating margin that the Co. thinks are not likely to approach those of the Co.'s wholesale businesses moving forward.
4. Cash-on-cash Return Investment: 1. Inlight of the price that the Co. was being paid for this asset as of 06/22/07, thought this was an opportune time to monetise Barney's and be in a position to: 1. Return a significant amount of capital to its shareholders
to repay some short-term debt. 2. Do what it needs to continue to develop its power brands, Jones, Anne Klein, and Nine West, and Gloria Vanderbilt. 3. Outlook: 1. Will continue to evaluate its portfolio. 2. Is working hard on improving profitability.
1. This is going to be the focus for the foreseeable future.
3. The Co. remains with a deep bench. 1. One of the things that has made this transaction easy is clearly Barney is operated as a stand-alone entity. 4. Expects this transaction will close in 3Q07.
QUESTION AND ANSWER SUMMARY
OPERATOR: (Operator Instructions.) And gentlemen, our first question comes from Jeff Edelman from UBS.
JEFF EDELMAN, ANALYST, UBS: Thank you. Peter, congratulations for the world's best-kept secret, and I hope you can get the same kind of return on the rest of your investments. I think you probably hit this pretty well, but in a case where seven weeks into the quarter since we had our last call. I was wondering if you could just give us an idea how some of the initiatives are operating?
PETER BONEPARTH, PRESIDENT & CEO, JONES APPAREL GROUP INC.: Jeffrey, I'm sorry. I'm losing you. But obviously, you know, we're trying to keep the focus of this on Barneys. I don't think, in terms of our strategy, anything has changed since we've last spoken to you. I think we're delighted that we were able to announce that we in fact have a new head of retail. As we said in our last conference call, we expected the retail operations to certainly not improve very much in the quarter we're in, and start to see some turnaround late third quarter going into …