Bear Stearns Tries on Shoes

Its Merchant Banking arm is buying a stake in high-end shoemaker Stuart Weitzman Holdings, in another foray into retail

By Steve Rosenbush

Bear Stearns Merchant Banking is taking a stake in Stuart Weitzman Holdings, the New York-based designer of women's shoes and handbags, BusinessWeek Online has learned. The agreement is expected to be announced on June 29.

The private-equity group, an affiliate of investment bank Bear Stearns & Co. (BSC ), will make a minority investment estimated to be in the neighborhood of $100 million. The deal follows months of negotiation between the privately held shoe company and Bear Stearns Merchant Banking.

And it shows how private-equity firms, which have long specialized in turnarounds of troubled businesses, are trying to develop new markets by going after successful upscale outfits. The 30-year-old Weitzman Holdings is known for designing high-end shoes that are handmade at factories in the south of Spain. They're distributed through a variety of channels, including 15 Weitzman stores and a host of department stores, including Saks Fifth Avenue and Neiman Marcus.


  For Weitzman, the investment represents an opportunity to move beyond its shoe business. The company still obtains 90% of its revenue form the sale of women's footwear, much of which is designed by the 63-year-old founder himself. While it has expanded into handbags, other markets can be tapped with the infusion of capital. Wallets, belts, and shoes for men and children are all expansion possibilities, according to Rick Perkal, a senior managing director at the eight-year-old investment company.

Until now, Weitzman the company and Weitzman the man have been one and the same. Stuart Weitzman grew up in the world of New York retail, where his father Seymour sold shoes. Armed with a business degree from the University of Pennsylvania's Wharton School, the younger Weitzman had a unique combination of management skill and creative sensibility. He has spent years overseeing every aspect of the business, from the design of individual shoes to the management of the business. But to grow, Weitzman will need to bring in more people on the creative end who have experience designing other kinds of products. Stuart Weitzman, who was in Spain on June 28, wasn't immediately available for comment.

For Bear Stearns Merchant Banking, the deal reflects a long-standing interest in the retail sector. The firm has carved out a niche in the increasingly competitive private-equity market, with retail investments such as the Aeropostale (ARO ) clothing company. It acquired Aeropostale from Federated (FD ) in 1998 and took it public in 2002. Aeropostale, which had 112 stores when Federated sold it to Bear Stearns, has about 550 stores now. After a series of public offerings, Bear Stearns says it has realized a gain of $476.6 million on an investment of $6 million.


  It'll be hard to duplicate that performance, because potential acquisitions are so much pricier than they were in the earlier days of private equity. With so many acquirers now on the scene, competition for relatively scare assets is growing.

But Bear Stearns continues to see deals worth doing in the retail sector. It bought New York & Co. for $63 million in 2002. It took the company public last year, realizing a gain of $131.6 million. Bear Stearns continues to hold $770.3 million in New York & Co.'s stock. Late last winter, it purchased 50% of premium jeans company Seven for All Mankind, which is based in Los Angeles. Terms of the deal weren't disclosed.

The companies in the Bear Stearns portfolio will remain separate entities, according to Perkal. "But these companies have several things in common, including excellent management and an opportunity to grow," he says.

Given Bear Stearns' investment history, it would be logical to assume that Weitzman is headed toward an IPO during the next few years. It's also possible that the company could be sold to a strategic buyer, such as a large clothing company or retailer. But that's several steps away. For now, Weitzman and Bear Stearns will be focused on building the brand and pushing it into new lines of business.

Rosenbush is a senior writer for BusinessWeek Online in New York

Edited by Beth Belton

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