Aug. 9 (Bloomberg) -- Jones Apparel Group Inc. will sell its Barneys New York luxury chain to Istithmar PJSC, an investment firm owned by the Dubai government, for $942.3 million after Japan's Fast Retailing Co. dropped out of bidding.

The transaction will close in the third quarter, Jones said in an e-mailed statement today. Fast, owner of the Uniqlo casual-clothing stores, said earlier in the day it wouldn't raise its offer. It had had until a 5 p.m. to counterbid.

Istithmar, which twice raised its initial offer for the luxury chain to counter Fast, may add to the seven Barneys locations, which sell Helmut Lang clothes and Fendi handbags, said Arun Daniel, an analyst with ING Investments LLC in New York. Jones Chief Executive Officer Wesley Card is shedding sportswear brands to focus on the Jones New York, Anne Klein and Nine West lines.

``Barneys is in a unique position in its high-end niche, and that segment of the market is performing well,'' Daniel said yesterday. ``That is where the opportunities are to come in and expand the brand and add square-footage growth.''

ING holds Jones shares among the $40 billion in assets it manages.

Shares of Jones, based in Bristol, Pennsylvania, fell $1.71, or 8.6 percent, to $18.17 at 4:01 p.m. in New York Stock Exchange composite trading. They have slumped 46 percent this year. Shares of Fast advanced 10 percent today to close at 7,190 yen in Tokyo.

Istithmar Expansion

Istithmar said in February that it will spend $1.7 billion this year buying retail, industrial and financial-services companies. Since 2003, the firm has acquired New York properties including the W Hotel Union Square and a $1 billion stake in London-based bank Standard Chartered Plc.

``Barneys is a unique global asset with incredible growth prospects within the luxury market,'' Istithmar Executive Chairman Sultan Ahmed Bin Sulayem said today in a statement.

Jones agreed in June to sell Barneys to Istithmar for $825 million. Two weeks later, Fast offered $900 million, which Istithmar matched Aug. 5. Later that day, Fast countered with a higher bid of $950 million.

Jones would have to pay a $34.7 million breakup fee should it cancel the Istithmar agreement, making that Fast bid worth less.

``We won't make another proposal,'' Fast spokesman Takashi Igarashi said in a phone interview today. ``The price we suggested was very different from what they had in mind.''

Relying on Uniqlo

Chief Executive Officer Tadashi Yanai, Japan's eighth- richest man, has had little success reducing the Yamaguchi, Japan-based company's reliance on earnings from Uniqlo, which accounts for 85 percent of sales.

``Withdrawing from the bid for Barneys is good news'' for Fast, said Masafumi Shoda, an analyst at Nomura Securities in Tokyo. ``The company should be focused on improving the profitability of its Japanese Uniqlo business.''

Barneys, whose rivals include Neiman Marcus Group Inc., also runs 14 CO-OPs stores that target younger shoppers and feature brands such as Theory. In addition, the company has 13 outlets. Barneys doesn't have any international locations.

``We intend to grow the company in the U.S. and in international markets,'' Bin Sulayem said in the statement.

Faster Growth

The retailer has outpaced discount and department stores in sales growth. Revenue at stores open at least a year climbed 10 percent in the first quarter, compared with a 0.6 percent gain for Macy's Inc., the second-largest U.S. department-store chain. Jones didn't release second-quarter figures for Barneys.

Barney Pressman founded Barneys as a cut-rate men's suit store in 1923, and the company began building up women's fashion lines in the 1970s. It exited bankruptcy protection in January 1999. Sales totaled $444.2 million in the year through July 31, 2004, the last time they were released.

Fast, founded in 1963, has 1,800 stores in 12 countries. Sales for the year through August 2006 were 448.8 billion yen ($3.8 billion). Its apparel brands include Comptoir des Cotonniers and Princesse tam.tam.

Peter J. Solomon Co. and Citigroup Inc. served as Istithmar's advisers, and Citigroup is providing financing. KPMG International gave financial and tax advisory services and McKinsey & Co. was a strategic consultant. Cleary Gottlieb Steen & Hamilton LLP served as Istithmar's legal adviser.

To contact the reporters on this story: Maki Shiraki in Tokyo at mshiraki1@bloomberg.net; Cotten Timberlake in New York at ctimberlake@bloomberg.net.

Last Updated: August 9, 2007 19:04 EDT