Case Study Selling Neiman Marcus

7/28/2019 Case Study Selling Neiman Marcus

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{\i0 \fs18 \ul0 \cf1 \strike0 \f0 \b0}{\i0 \fs18 \cf1 \f0 \b1{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f0 \b1 \sb0WILLIAM GOLDMAN}}{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f0 \b0 \sb0

}{\i0 \fs18 \cf1 \f0 \b1{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f0 \b1 \sb09/20/2011}}{\i0 \fs18 \ul0 \cf1 \strike0 \f0 \b0\par}}{\ri0 \i0 \fs18 \cf1 \f0 \li0 \qc \b0{\i0 \fs18 \ul0 \cf1 \strike0 \f0 \b0}{\i0 \fs18 \cf1 \f0 \b1{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f0 \b1 \sb0

For Educational Use Only}}{\i0 \fs18 \ul0 \cf1 \strike0 \f0 \b0}}\i0 \ri0 \fs18 \sa0 \ul0 \cf1 \strike0 \f0 \li0 \qc \b0 \sb0 \intbl \cell \row}{\trowd \itap0 \trleft0\clpadb60 \clpadfb3 \clpadl400 \clpadfl3 \clbrdrb \brdrs \brdrw20 \brdrcf17 \clbrdrl \trql \clvertalb \cellx9380\clpadb60 \clpadfb3 \clpadl400 \clpadfl3 \clbrdrb \brdrs \brdrw20 \brdrcf17 \clbrdrr \trql \cellx10080\intbl

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}\i0 \ri0 \fs20 \ql \sa0 \ul0 \cf17 \strike0 \f0 \li0 \b0 \sb0 \intbl \cell \intbl{\ri0 \i0 \fs20 \cf17 \f0 \li0 \qr \b0{\b0 \i0 \ul0 \fs20 \f0 \chpgn }}\i0 \ri0 \fs20 \ul0 \cf17 \strike0 \f0 \li0 \qr \b0 \intbl \cell \row }}}{\ri0 \i0 \ql \fs24 \cf1 \f3 \li0 \b0 \par}\sect\sbknone\pgncont\cols1{{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_document_1}{\*\bkmkend co_document_1}{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart I90b73c31e99811dbacd6b4db45fd6021_Target}{\*\bkmkend I90b73c31e998


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11dbacd6b4db45fd6021_Target}\par}{\ri0 \i0 \fs20 \cf1 \f5 \li0 \qc \b0{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f5 \b0 \sb012 Harv. Negot. L. Rev. 235\par}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b1{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b1 \sb400Harvard Negotiation Law Review\par}}}{\i0 \fs20 \cf1 \f5 \b0{\i0 \fs20 \cf27 \f5 \chcbpat26 \b1{\i0 \fs20 \sa0 \ul0 \cf27 \strike0 \f5 \b1 \sb0Winter}}

{\i0 \fs20 \cf1 \f5 \chcbpat2 \b0}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f5 \b0 \sb0

}{\i0 \fs20 \cf27 \f5 \chcbpat26 \b1{\i0 \fs20 \sa0 \ul0 \cf27 \strike0 \f5 \b1 \sb02007}}{\i0 \fs20 \cf1 \f5 \chcbpat2 \b0\par}

}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Note\par}}}{\ri100 \i0 \fs20 \cf27 \f5 \li100 \qc \b0{\i0 \fs20 \sa200 \ul0 \cf27 \strike0 \f5 \b0 \sb200CASE STUDY: SELLING NEIMAN MARCUS\par

}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\i0 \fs20 \cf1 \f2 \b0{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b0 \sb200Bryce Klempner, Dharini Mathur, Lerato Molefe, Jen Reynolds, Tony Uccellini}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_Fd1331276596_ID0ERI}{\*\bkmkend co_footnoteReference_Fd1331276596_ID0ERI}


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{\field {\*\fldinst HYPERLINK "#co_footnote_Fd1331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0d1}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b0{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b0 \sb0Copyright (c) 2007 Harvard Negotiation Law Review; Bryce Klempner; Dharini Mathur; Lerato Molefe; Jen Reynolds; Tony Uccellini\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EHJAC_1}{\*\bkmkend co_g_ID0EHJAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0On May 2, 2005, the Neiman Marcus Group (\u8220\'3fNeiman\u8221\'3f) announced that it had accepted an acquisition proposal by a corporate vehicle controlled jo

intly by two large private equity firms, Texas Pacific Group and Warburg Pincus(\u8220\'3fTPG/Warburg\u8221\'3f). At the time of the sale, Neiman was the \u8220\'3fcrown jewel\u8221\'3f of the luxury industry:}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F1331276596_ID0EQJA}{\*\bkmkend co_footnoteReference_F1331276596_ID0EQJA}{\field {\*\fldinst HYPERLINK "#co_footnote_F1331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb01}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

the company\rquote s stock was trading at an all-time peak; its management teamwas widely admired; and its financial health was excellent, with investment-grade credit and little debt.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F2331276596_ID0EVJA}{\*\bkmkend co_footnoteReference_F2331276596_ID0EVJA}{\field {\*\fldinst HYPERLINK "#co_footnote_F2331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb02}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

It was an expensive time to purchase such a high-quality asset; indeed, with afinal price tag of $5.1 billion, the leveraged buyout ended up commanding far more money than analysts in both the private equity and retail industries had expected.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F3331276596_ID0EZJA}{\*\bkmkend co_footnoteReference_F3331276596_ID0EZJA}{\field {\*\fldinst HYPERLINK "#co_footnote_F3331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0


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3}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EAKAC_1}{\*\bkmkend co_g_ID0EAKAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0What is remarkable about this deal is not simply that the company obtained sucha high final price - a price that many industry insiders believed to be at, if not above, the top of its value range - but}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_236_1}{\*\bkmkend co_pp_sp_111958_236_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*236}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200that it did so with a common value auction that employed tight controls and seller-friendly deal protections within a relatively compressed timeframe. In theory, all these factors should have pushed the price down, not up.

\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EUKAC_1}{\*\bkmkend co_g_ID0EUKAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Neiman chose to sell after the Smith family, the company\rquote s controlling shareholders, decided to liquidate.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F4331276596_ID0E3KA}{\*\bkmkend co_footnoteRe

ference_F4331276596_ID0E3KA}{\field {\*\fldinst HYPERLINK "#co_footnote_F4331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb04}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0The Smiths were by no means desperate to sell, but they wanted to take advantage of the favorable market conditions for the retail and luxury sectors.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F5331276596_ID0EBLA}{\*\bkmkend co_footnoteReference_F5331276596_ID0EBLA}

{\field {\*\fldinst HYPERLINK "#co_footnote_F5331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb05}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200To that end, Neiman developed a rigorously controlled sale and auction that took place over several months. During that time, Neiman closely managed the bidding process from start to finish - all the way from handpicking the initial invitations to pressuring prospective bidders into \u8220\'3fclubs\u8221\'3f of Neiman


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\rquote s choosing. Even the agreement\rquote s deal protections - provisions which have traditionally served as safeguards for the buyer - tilted in Neiman\rquote s favor: the deal\rquote s sliding reverse breakup fee, for example, effectively prevented any last-minute buyer\rquote s remorse.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EQLAC_1}{\*\bkmkend co_g_ID0EQLAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200The Neiman Marcus case thus presents one very successful solution to a common negotiation puzzle: how can a motivated seller extract maximum value, on its own terms, in a short timeframe? An answer can be found through close examination ofthe auction mechanics, deal protections, and risk management utilized in the Neiman acquisition. The story of how Neiman Marcus was able to pull off this auctioneering feat is an instructive and compelling example of successful, sophisticated deal design and implementation.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj

{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ECMAC_1}{\*\bkmkend co_g_ID0ECMAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200This case study first sketches the factual background and details of the deal. It then outlines the case\rquote s central puzzle and considers other possible solutions and additional considerations within the context of negotiation dynamicsand the modern private equity industry. The Neiman deal may be exceptional in many ways, but it nonetheless provides an interesting case study in managing complex auction dynamics in a seller\rquote s market.\par}}}

}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b1{\*\bkmkstart co_g_ID0EUMAC_1}{\*\bkmkend co_g_ID0EUMAC_1}{\i0 \fs20 \ul0 \cf1 \strike0 \f2 \b1}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_237_1}{\*\bkmkend co_pp_sp_111958_237_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*237}}{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b1 \sb200

The Making of a Deal\par}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ECNAC_1}{\*\bkmkend co_g_ID0ECNAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0For the Smith family, Neiman Marcus represented a large portion of their dynastic wealth. The Smiths had initially invested in Neiman as friendly acquirors, or


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\u8220\'3fwhite knights,\u8221\'3f in 1984, and the company became part of the larger Smith family conglomerate.}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Due to a series of mergers and tax-free spin-offs subsequent to the investment,along with periods of bad market conditions, the family had had little opportunity to exit the investment completely on favorable terms.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F6331276596_ID0EQNA}{\*\bkmkend co_footnoteReference_F6331276596_ID0EQNA}{\field {\*\fldinst HYPERLINK "#co_footnote_F6331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb06}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0However, because a tax obstacle raised by a previous restructuring had just expired,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F7331276596_ID0ETNA}{\*\bkmkend co_footnoteReference_F7331276596_ID0ETNA}{\field {\*\fldinst HYPERLINK "#co_footnote_F7331276596_1" }{\fldrslt

{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb07}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0and because retail businesses were selling well, mid-2005 appeared a propitioustime for the Smith family to sell the company - and they were therefore very eager to do so.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F8331276596_ID0EXNA}{\*\bkmkend co_footnoteReference_F8331276596_ID0EXNA}{\field {\*\fldinst HYPERLINK "#co_footnote_F8331276596_1" }{\fldrslt

{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb08}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0E5NAC_1}{\*\bkmkend co_g_ID0E5NAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Neiman\rquote s board of directors started evaluating the company\rquote s alternatives. Business was good, and accordingly the company was not desperate to sel

l. The other alternatives, however - namely, recapitalization or a strategic merger - were not attractive to the board because of the unique qualities of the Neiman brand and the controlling shareholder family. Recapitalization would have involved taking on significant debt, but the shareholders would not have been comfortable assuming such a debt load, and the company was unwilling to compromiseits capital investment program or its corporate image.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F9331276596_ID0EPOA}{\*\bkmkend co_footnoteReference_F9331276596_ID0EPOA}


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{\field {\*\fldinst HYPERLINK "#co_footnote_F9331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb09}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0A strategic merger might have been more appealing, but at the time the only possible partner was Saks Fifth Avenue, which was busy with other transactions andwhose merger with Neiman would}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_238_1}{\*\bkmkend co_pp_sp_111958_238_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*238}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0have been likely to trigger Hart-Scott-Rodino review.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F10331276596_ID0EZO}{\*\bkmkend co_footnoteReference_F10331276596_ID0EZO}{\field {\*\fldinst HYPERLINK "#co_footnote_F10331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

10}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Because retailers were in vogue among financial buyers and the luxury market was especially robust, selling the company to a financial buyer seemed like the best way to achieve the interests of the Smiths and other Neiman stakeholders.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F11331276596_ID0E4O}{\*\bkmkend co_footnoteReference_F11331276596_ID0E4O}{\field {\*\fldinst HYPERLINK "#co_footnote_F11331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

11}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EEPAC_1}{\*\bkmkend co_g_ID0EEPAC_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In January 2005, Neiman hired Goldman Sachs to draw up a list of possible financial bidders for the company.}

{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F12331276596_ID0EMP}{\*\bkmkend co_footnoteReference_F12331276596_ID0EMP}{\field {\*\fldinst HYPERLINK "#co_footnote_F12331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb012}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Although management was interested in exploring all strategic possibilities, th


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ey wanted to bring financial bidders into the process early, so that they couldbring potential buyers up to speed on the property.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F13331276596_ID0ERP}{\*\bkmkend co_footnoteReference_F13331276596_ID0ERP}{\field {\*\fldinst HYPERLINK "#co_footnote_F13331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb013}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Several private equity firms expressed preliminary interest in moving forward,and Neiman set up a series of informational meetings throughout the next few months. Neiman\rquote s banker, Goldman Sachs, offered financing to the bidders (\u8220\'3fstapled financing,\u8221\'3f so called because the \u8220\'3fpre-baked financing package is \u8216\'3fstapled\u8217\'3f to the target company and sanctioned by the seller\u8221\'3f}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F14331276596_ID0EBA}{\*\bkmkend co_footnoteReference_F14331276596_ID0EBA}{\field {\*\fldinst HYPERLINK "#co_footnote_F14331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

14}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200), which gave the bidders a common floor for negotiating their own third-party financing arrangements.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F15331276596_ID0EFA}{\*\bkmkend co_footnoteReference_F15331276596_ID0EFA}{\field {\*\fldinst HYPERLINK "#co_footnote_F15331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb015

}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EMAAE_1}{\*\bkmkend co_g_ID0EMAAE_1}{\i0 \fs20 \ul0 \cf1 \strike0 \f2 \b0}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_239_1}{\*\bkmkend co_pp_sp_111958_239_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0

*239}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0The preliminary discussions and due diligence period lasted from February untilApril. During this time, Goldman was also lining up the sale of Neiman\rquote sprivate-label credit card unit, a significant but non-core asset.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F16331276596_ID0E2A}{\*\bkmkend co_footnoteRe


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ference_F16331276596_ID0E2A}{\field {\*\fldinst HYPERLINK "#co_footnote_F16331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb016}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0The auction of the credit card division proceeded alongside the auction for therest of the company, so that part of Goldman\rquote s updates to the Neiman bidders included the progress on the credit card sale.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F17331276596_ID0EAB}{\*\bkmkend co_footnoteReference_F17331276596_ID0EAB}{\field {\*\fldinst HYPERLINK "#co_footnote_F17331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb017}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200The proceeds of the sale would flow directly to the winning bidder.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F18331276596_ID0EEB}{\*\bkmkend co_footnoteRe

ference_F18331276596_ID0EEB}{\field {\*\fldinst HYPERLINK "#co_footnote_F18331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb018}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ELBAE_1}{\*\bkmkend co_g_ID0ELBAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

In March, Goldman arranged the bidders into bidding consortiums, commonly knownas \u8220\'3fclubs.\u8221\'3f}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F19331276596_ID0ETB}{\*\bkmkend co_footnoteReference_F19331276596_ID0ETB}{\field {\*\fldinst HYPERLINK "#co_footnote_F19331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb019}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0At the beginning of the process, Neiman asked the bidders to sign confidentiali

ty agreements that precluded any club formation without Neiman\rquote s consent.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F20331276596_ID0EYB}{\*\bkmkend co_footnoteReference_F20331276596_ID0EYB}{\field {\*\fldinst HYPERLINK "#co_footnote_F20331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb020}}}}


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{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Without signing the confidentiality agreements, potential bidders would not begiven access to Neiman\rquote s confidential internal documents, essential to the due diligence of any financial buyer. The company was not averse to club formation, however; in fact, Neiman and Goldman knew from the beginning that no single private equity firm would be willing to risk as much of its own capital as would be necessary for the non-debt portion of the purchase price.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F21331276596_ID0EAC}{\*\bkmkend co_footnoteReference_F21331276596_ID0EAC}{\field {\*\fldinst HYPERLINK "#co_footnote_F21331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb021}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0To maximize the competitiveness of the auction, Neiman wanted to promote the formation of as many bidding clubs as possible, while also ensuring that each clubhad the resources to fund the equity portion of the deal. Neiman}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_240_1}{\*\bkmkend co_pp_sp_111958_240_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0

*240}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0and Goldman therefore decided to limit the club size to a maximum of two firms.After consultation with potential bidders as to their preferences and researchon which firms had worked well together in the past,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F22331276596_ID0EOC}{\*\bkmkend co_footnoteReference_F22331276596_ID0EOC}{\field {\*\fldinst HYPERLINK "#co_footnote_F22331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

22}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Goldman assembled the following pairs: TPG/Warburg, the Blackstone Group and Thomas H. Lee Partners (\u8220\'3fBlackstone/Lee\u8221\'3f), Kohlberg Kravis Roberts and Bain Capital (\u8220\'3fKKR/Bain\u8221\'3f), and Apollo Management and Leonard Green (\u8220\'3fApollo/Green\u8221\'3f). Only two of these clubs made itto the finish line: Apollo/Green dropped out before bidding commenced, and although KKR/Bain did bid, they were out of serious contention before the final round.}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F23331276596_ID0EVC}{\*\bkmkend co_footnoteReference_F23331276596_ID0EVC}{\field {\*\fldinst HYPERLINK "#co_footnote_F23331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb023}}}\par}}}


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{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0E3CAE_1}{\*\bkmkend co_g_ID0E3CAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0As the auction neared, Neiman sent a draft merger agreement to each club and requested comments. Upon receiving the markups, Neiman decided which changes were acceptable and merged them into a master \u8220\'3fhomogenized contract,\u8221\'3f containing certain non-negotiable terms, for all the bidders to use in the auction process.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F24331276596_ID0EHD}{\*\bkmkend co_footnoteReference_F24331276596_ID0EHD}{\field {\*\fldinst HYPERLINK "#co_footnote_F24331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb024}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0This homogenized contract featured stringent deal protections and, notably, didnot contain a \u8220\'3ffinancing out,\u8221\'3f a standard provision that enables buyers to walk away from the deal should the financing fall through.\par}

}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EQDAE_1}{\*\bkmkend co_g_ID0EQDAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In late April, Neiman asked for bids from the clubs. TPG/Warburg\rquote s bid of$100 per share was the highest, with Blackstone/Lee in second place and KKR/Bain a distant third. After a weekend of negotiation on some of the deal terms, Neiman announced that TPG/Warburg had won the auction with an offer of $5.1 billion. That summer, HSBC purchased the credit card concern for $640 million,}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F25331276596_ID0E6D}{\*\bkmkend co_footnoteReference_F25331276596_ID0E6D}{\field {\*\fldinst HYPERLINK "#co_footnote_F25331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb025}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200and in November, Neiman\rquote s shareholders approved the sale to the TPG/Warburg club.\par}}

}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b1{\*\bkmkstart co_g_ID0EIEAE_1}{\*\bkmkend co_g_ID0EIEAE_1}{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b1 \sb200The Puzzle\par}}


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{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ESEAE_1}{\*\bkmkend co_g_ID0ESEAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Several aspects of this deal make it especially striking that Neiman fetched such a high price.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F26331276596_ID0E1E}{\*\bkmkend co_footnoteReference_F26331276596_ID0E1E}{\field {\*\fldinst HYPERLINK "#co_footnote_F26331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb026}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0First, Neiman was a well-managed,}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_241_1}{\*\bkmkend co_pp_sp_111958_241_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*241}}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0high-performing company, so a financial buyer would be unable to extract much marginal value via governance improvements.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F27331276596_ID0EEF}{\*\bkmkend co_footnoteReference_F27331276596_ID0EEF}{\field {\*\fldinst HYPERLINK "#co_footnote_F27331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb027}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

To the extent that private equity firms add value to their portfolio companiesthrough operational upgrades, the lack of any evident problems to fix could havemade Neiman a less appealing investment.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F28331276596_ID0EJF}{\*\bkmkend co_footnoteReference_F28331276596_ID0EJF}{\field {\*\fldinst HYPERLINK "#co_footnote_F28331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb028}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

Moreover, the luxury market was so inflated at the time that buying Neiman would be expensive relative to its expected value, causing a decrease in the rate ofreturn on the investment.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ESFAE_1}{\*\bkmkend co_g_ID0ESFAE_1}


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{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Second, the absence of strategic buyers - retailers or others who might be ableto recognize synergies with Neiman\rquote s existing operations - meant that there was little private value potential in this sale. In basic auction theory, there are two types of value that can be recognized by bidders: common and private.Common value properties will command similar prices across buyers because theirvalue is well defined and widely understood; commodities such as pork bellies,for example, are common value items. Private value properties will vary in value, because those buyers who perceive unique synergies or affinities - a fan of Impressionist art bidding on a Monet, for example - will make higher offers than those buyers who are less idiosyncratically interested.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F29331276596_ID0EDG}{\*\bkmkend co_footnoteReference_F29331276596_ID0EDG}{\field {\*\fldinst HYPERLINK "#co_footnote_F29331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb029}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Strategic bidders typically recognize more private value than financial bidderswill, because they can imagine how the new property will fit into their preexisting business infrastructure; financial bidders, with no \u8220\'3fbusiness\u822

1\'3f other than investment, usually cannot realize these kinds of synergies andare only interested in common value.}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In Neiman\rquote s case, there were only non-strategic financial buyers,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F30331276596_ID0EJG}{\*\bkmkend co_footnoteReference_F30331276596_ID0EJG}{\field {\*\fldinst HYPERLINK "#co_footnote_F30331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb030}}}

}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200so any private value \u8220\'3fpremium\u8221\'3f would not apply.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F31331276596_ID0ENG}{\*\bkmkend co_footnoteReference_F31331276596_ID0ENG}{\field {\*\fldinst HYPERLINK "#co_footnote_F31331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb031}}}\par}

}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EUGAE_1}{\*\bkmkend co_g_ID0EUGAE_1}{\i0 \fs20 \ul0 \cf1 \strike0 \f2 \b0}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_242_1}{\*\bkmkend co_pp_sp_111958_242_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0


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*242}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Third, as discussed above, due to the size of the deal it was inevitable that private equity funds would team up into clubs to raise the needed capital,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F32331276596_ID0E5G}{\*\bkmkend co_footnoteReference_F32331276596_ID0E5G}{\field {\*\fldinst HYPERLINK "#co_footnote_F32331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb032}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0thereby reducing the number of bidders and possibly depressing the size of final bids in the auction.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F33331276596_ID0EDH}{\*\bkmkend co_footnoteReference_F33331276596_ID0EDH}{\field {\*\fldinst HYPERLINK "#co_footnote_F33331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

33}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Club deals have become increasingly common in large public transactions, and there is considerable interest in how well they can absorb the risks inherent in teaming up to tackle complex, long-term projects.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F34331276596_ID0EIH}{\*\bkmkend co_footnoteReference_F34331276596_ID0EIH}{\field {\*\fldinst HYPERLINK "#co_footnote_F34331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

34}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0The challenge of managing different time horizons, divergent institutional priorities, and disparate internal structures could, conceivably, make it difficultto recognize the full value of their joint investment.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F35331276596_ID0ENH}{\*\bkmkend co_footnoteReference_F35331276596_ID0ENH}{\field {\*\fldinst HYPERLINK "#co_footnote_F35331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

35}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Goldman\rquote s decision to exercise control over the pairings would seem to invite such mismatches and organizational clashes.\par}}}


17/66

{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EWHAE_1}{\*\bkmkend co_g_ID0EWHAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Fourth, key provisions of the merger agreement - the reverse breakup fee and thelack of a financing out - shifted deal risk to the buyers, even in areas traditionally the responsibility of the sellers.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F36331276596_ID0E5H}{\*\bkmkend co_footnoteReference_F36331276596_ID0E5H}{\field {\*\fldinst HYPERLINK "#co_footnote_F36331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb036}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Although some buyers view reverse breakup fees as essentially \u8220\'3foptions\u8221\'3f on the deal,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F37331276596_ID0EBI}{\*\bkmkend co_footnoteReference_F37331276596_ID0EBI}{\field {\*\fldinst HYPERLINK "#co_footnote_F37331276596_1" }{\fldrslt

{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb037}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0in this case, the reverse breakup fee was too onerous to permit such an interpretation.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F38331276596_ID0EGI}{\*\bkmkend co_footnoteReference_F38331276596_ID0EGI}{\field {\*\fldinst HYPERLINK "#co_footnote_F38331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

38}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Moreover, because}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_243_1}{\*\bkmkend co_pp_sp_111958_243_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*243}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200

Goldman offered stapled financing to all the bidders from the beginning, the clubs knew that they would not be able to claim that they were unable to find sufficient backing.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EUIAE_1}{\*\bkmkend co_g_ID0EUIAE_1}


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{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In spite of all this, Neiman sold itself at an above-average premium (34% aboveits share price at announcement of the sale process, and nine times its cash flow), defying speculation by competitors, analysts, and other bidders alike.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F39331276596_ID0E3I}{\*\bkmkend co_footnoteReference_F39331276596_ID0E3I}{\field {\*\fldinst HYPERLINK "#co_footnote_F39331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb039}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200How did Neiman manage to achieve such a high price on its own terms and timeline, without any apparent concessions to the buyers?\par}}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b1{\*\bkmkstart co_g_ID0EFJAE_1}{\*\bkmkend co_g_ID0EFJAE_1}

{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b1 \sb200The Answer\par}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EPJAE_1}{\*\bkmkend co_g_ID0EPJAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Neiman\rquote s tight auction controls, seller-friendly deal protections, and short timeframe ultimately did not, as intuition or conventional wisdom might suggest, paint the company into a corner. On the contrary, these three elements actually enabled the company to harness pro-seller market trends and capture substan

tial value. First, Neiman\rquote s firm control of the process allowed the company to regulate crucial deal dynamics - including who bid, with whom, and on whatterms - while eliminating uncertainties that may have depressed the final price. Second, Neiman\rquote s cutting-edge deal protections ensured that the deal would not fall through or be subject to retrading at the last moment. Third, Neiman was in the right place at the right time: good timing, intelligent market analysis, and just plain luck contributed to its success.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj

{\*\bkmkstart co_g_ID0EHKAE_1}{\*\bkmkend co_g_ID0EHKAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Closer examination of the negotiation puzzle in the Neiman context, then, reveals unexpected synchronicities between puzzle and answer. For Neiman, the same factors that might theoretically have destroyed value - control, protection, and timing - turned out to be the very reasons the company commanded such an impressive price.\par}}


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}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EWKAE_1}{\*\bkmkend co_g_ID0EWKAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb2001. Controlling the Process.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0ECLAE_1}{\*\bkmkend co_g_ID0ECLAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0From the beginning, Neiman\rquote s advisors orchestrated every aspect of the auction.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F40331276596_ID0EKL}{\*\bkmkend co_footnoteReference_F40331276596_ID0EKL}{\field {\*\fldinst HYPERLINK "#co_footnote_F40331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb040}}}

}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In January, Neiman invited specific financial}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_244_1}{\*\bkmkend co_pp_sp_111958_244_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*244}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0bidders to the table to begin negotiations before announcing the sale process to the general market.

}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F41331276596_ID0EUL}{\*\bkmkend co_footnoteReference_F41331276596_ID0EUL}{\field {\*\fldinst HYPERLINK "#co_footnote_F41331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb041}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0This minimized the risk of information leaks and allowed the management team and its advisers to concentrate their efforts on the parties most likely to offera premium bid. The subsequent public announcement

}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F42331276596_ID0E1L}{\*\bkmkend co_footnoteReference_F42331276596_ID0E1L}{\field {\*\fldinst HYPERLINK "#co_footnote_F42331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb042}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200


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that Neiman was investigating \u8220\'3fstrategic alternatives\u8221\'3f ensured that the process did not miss any interested buyers and that Neiman was fullyin compliance with its Revlon duties, which require companies to seek the maximum value for stockholders in a sale of the company.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EDMAE_1}{\*\bkmkend co_g_ID0EDMAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Inviting the participants was the first step; the second was to make sure that they worked together well, but not too well - bidder collusion is always a concern in the auction context. Neiman\rquote s bankers at Goldman directed the formation of bidding consortiums - \u8220\'3fa series of forced marriages,\u8221\'3f in the words of one participant}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F43331276596_ID0EMM}{\*\bkmkend co_footnoteReference_F43331276596_ID0EMM}{\field {\*\fldinst HYPERLINK "#co_footnote_F43331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb043

}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0- to ensure a competitive bidding process that resulted in higher bids.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F44331276596_ID0ERM}{\*\bkmkend co_footnoteReference_F44331276596_ID0ERM}{\field {\*\fldinst HYPERLINK "#co_footnote_F44331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb044}}}}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Pre-partnering certain bidders can forestall anti-competitive pairings in whichbidders band together to eliminate competition (as in the March 2005 buyout ofSunGard Data Systems}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F45331276596_ID0EUM}{\*\bkmkend co_footnoteReference_F45331276596_ID0EUM}{\field {\*\fldinst HYPERLINK "#co_footnote_F45331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb045}}}}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0), leading to a lower final price.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F46331276596_ID0EZM}{\*\bkmkend co_footnoteReference_F46331276596_ID0EZM}{\field {\*\fldinst HYPERLINK "#co_footnote_F46331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb046}}}


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}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Since the formation of bidding consortiums was a foregone conclusion given thesize of this deal, the confidentiality agreements served to prevent bidders fromvoluntarily forming teams without consent. This allowed Neiman to ensure that the resulting teams were the right size (that is, precisely two private equity firms each) and would complement each other well.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F47331276596_ID0EAN}{\*\bkmkend co_footnoteReference_F47331276596_ID0EAN}{\field {\*\fldinst HYPERLINK "#co_footnote_F47331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb047}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EHNAE_1}{\*\bkmkend co_g_ID0EHNAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Another important element of Neiman\rquote s control of process was its insisten

ce that bidders work from a homogenized contract that left}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_245_1}{\*\bkmkend co_pp_sp_111958_245_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*245}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0little room for last-minute retrades, creative departures, or tradeoffs.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F48331276596_ID0EUN}{\*\bkmkend co_footnoteRe

ference_F48331276596_ID0EUN}{\field {\*\fldinst HYPERLINK "#co_footnote_F48331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb048}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200The pre-negotiated homogenized contract, coupled with a short, two-day timeframe for final negotiations, helped prevent an eleventh-hour attempt by the winningbidders to renegotiate terms once they learned that they had prevailed in the auction.}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F49331276596_ID0EYN}{\*\bkmkend co_footnoteReference_F49331276596_ID0EYN}{\field {\*\fldinst HYPERLINK "#co_footnote_F49331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb049}}}\par}}}


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{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0E6NAE_1}{\*\bkmkend co_g_ID0E6NAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Moreover, Neiman\rquote s arrangement of a separate and concurrent sale of its credit card business was a key tactical move. The credit card business was a valuable asset that could command a high price if sold to strategic buyers in the financial services industry, because synergies with their existing retail credit businesses promised to create significant private value.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F50331276596_ID0EKO}{\*\bkmkend co_footnoteReference_F50331276596_ID0EKO}{\field {\*\fldinst HYPERLINK "#co_footnote_F50331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb050}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200A financial buyer of Neiman\rquote s entire business would likely divest the credit card division soon after a buyout to reduce transaction debt, and therefore, would discount its value due to the uncertainty of the price it would fetch ina sale. By orchestrating the concurrent sale of the credit card business, Neiman was able to ensure that the unit\rquote s full fair market value would devolve

to its shareholders, decreasing uncertainty for financial bidders and pushing up final offers for the company.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F51331276596_ID0ERO}{\*\bkmkend co_footnoteReference_F51331276596_ID0ERO}{\field {\*\fldinst HYPERLINK "#co_footnote_F51331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb051}}}\par}}

}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EYOAE_1}{\*\bkmkend co_g_ID0EYOAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb2002. Protecting the Deal.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EEPAE_1}{\*\bkmkend co_g_ID0EEPAE_1}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0To ensure that the deal would be consummated, Neiman included a variety of contractual protections to incentivize the parties. Before starting the auction process, the board installed \u8220\'3fgolden parachutes,\u8221\'3f or lucrative severance agreements, for key management personnel, in an attempt to ensure that management was fully committed to completing the auction process. Having the goldenparachutes in place reassured management that their jobs would be secure regardless of the outcome of the auction. Although golden parachutes are often viewedas an anti-takeover measure, in this case}


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{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_246_1}{\*\bkmkend co_pp_sp_111958_246_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*246}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200they provided reassurance to both the company and its potential buyers that themanagement team - which was, after all, one of the company\rquote s greatest strengths - would remain in place.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F52331276596_ID0EZP}{\*\bkmkend co_footnoteReference_F52331276596_ID0EZP}{\field {\*\fldinst HYPERLINK "#co_footnote_F52331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb052}}}\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj

{\*\bkmkstart co_g_ID0EAQAE_1}{\*\bkmkend co_g_ID0EAQAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In addition, Neiman\rquote s lawyers negotiated unusual contractual clauses to safeguard the deal for the seller. Traditional leveraged buyout (\u8220\'3fLBO\u8221\'3f) deal protections tend to place the onus largely on the sellers, givingbuyers a higher level of confidence that the sellers will not continue to look elsewhere for a higher price.}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0In this case, however, the traditional deal protections were supplemented by uncommon terms that focused on the buyers\rquote commitments.}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F53331276596_ID0EOQ}{\*\bkmkend co_footnoteReference_F53331276596_ID0EOQ}{\field {\*\fldinst HYPERLINK "#co_footnote_F53331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb053}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Most notably, the deal featured a \u8220\'3ftwo-tier\u8221\'3f reverse breakupfee of unprecedented scale, which broke new ground by completely omitting a financing out provision that might enable the buyers to abandon the deal.}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F54331276596_ID0ESQ}{\*\bkmkend co_footnoteReference_F54331276596_ID0ESQ}{\field {\*\fldinst HYPERLINK "#co_footnote_F54331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb054}}}\par}}}


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{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EZQAE_1}{\*\bkmkend co_g_ID0EZQAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Generally, reverse breakup fees impose predetermined costs on the buyers shouldthey decide not to follow through on their agreement to purchase the company. InNeiman\rquote s case, the reverse breakup fee imposed on the winning bidders apenalty of $140.3 million (about 3% of the enterprise value of the sale) if thedeal fell through because the financing did not materialize. This was only the second time such a fee had ever been imposed in the LBO of a public American company.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F55331276596_ID0EHR}{\*\bkmkend co_footnoteReference_F55331276596_ID0EHR}{\field {\*\fldinst HYPERLINK "#co_footnote_F55331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb055}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Neiman improved on the first use, however, by adding a second tier: the fee jumped to $500 million (almost 10% of enterprise value) if the deal did not close for reasons other than financing.

}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F56331276596_ID0EMR}{\*\bkmkend co_footnoteReference_F56331276596_ID0EMR}{\field {\*\fldinst HYPERLINK "#co_footnote_F56331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb056}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0This second tier was so punitive that it essentially forced}{\i1 \fs20 \cf28 \f2 \b1

{\*\bkmkstart co_pp_sp_111958_247_1}{\*\bkmkend co_pp_sp_111958_247_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*247}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0the winning bidders to abandon any notion that they might use the reverse breakup fee as a real option on the company.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F57331276596_ID0EWR}{\*\bkmkend co_footnoteReference_F57331276596_ID0EWR}{\field {\*\fldinst HYPERLINK "#co_footnote_F57331276596_1" }{\fldrslt

{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb057}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Apart from giving comfort to the Neiman board that there would be no dramatic last-minute bust-up,}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F58331276596_ID0EZR}{\*\bkmkend co_footnoteRe


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ference_F58331276596_ID0EZR}{\field {\*\fldinst HYPERLINK "#co_footnote_F58331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb058}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0the lack of a financing out also eliminated the natural temptation on the partof the winning bidder to ratchet down the final price by claiming difficulty inobtaining debt financing necessary to consummate the merger and threatening to invoke the financing out clause.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F59331276596_ID0E5R}{\*\bkmkend co_footnoteReference_F59331276596_ID0E5R}{\field {\*\fldinst HYPERLINK "#co_footnote_F59331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb059}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Instead, the buyers\rquote only notable out would be a tightly drafted material adverse change (\u8220\'3fMAC\u8221\'3f) clause - and the buyers were well aware that the threshold for adverse events to qualify as a MAC is extremely high i

n Delaware courts.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F60331276596_ID0ECS}{\*\bkmkend co_footnoteReference_F60331276596_ID0ECS}{\field {\*\fldinst HYPERLINK "#co_footnote_F60331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb060}}}\par}}}

{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EJSAE_1}{\*\bkmkend co_g_ID0EJSAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Why would bidders as sophisticated as TPG and Warburg agree to terms that seem so skewed towards the sellers? In their own words, they were \u8220\'3fvery comfortable with the process.\u8221\'3f}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F61331276596_ID0EUS}{\*\bkmkend co_footnoteReference_F61331276596_ID0EUS}{\field {\*\fldinst HYPERLINK "#co_footnote_F61331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0

61}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0They negotiated MAC clauses with the banks providing debt financing that mirrored almost perfectly the MAC clause in the sales agreement, so they were \u8220\'3fvery confident that their banks would show up.\u8221\'3f}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F62331276596_ID0ECT}{\*\bkmkend co_footnoteRe


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ference_F62331276596_ID0ECT}{\field {\*\fldinst HYPERLINK "#co_footnote_F62331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb062}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Second, Neiman was negotiating from a position of strength: it was a highly-respected company and there was significant interest in the auction. In short, TPG/Warburg really wanted the company and believed that they would be able to closethe transaction, so they were willing to accept fairly restrictive deal protections. Finally, to mitigate the buyers\rquote financing risk, Neiman\rquote s bankers at Goldman Sachs offered potential buyers \u8220\'3fstapled financing\u8221\'3f for the deal.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F63331276596_ID0ENT}{\*\bkmkend co_footnoteReference_F63331276596_ID0ENT}{\field {\*\fldinst HYPERLINK "#co_footnote_F63331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb063}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

This creates for buyers a convenient negotiation floor vis-\u224\'3f-vis otherpotential}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_248_1}{\*\bkmkend co_pp_sp_111958_248_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*248}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0sources of leverage, because their financing is guaranteed.}{\i0 \fs16 \cf1 \f2 \b0

{\*\bkmkstart co_footnoteReference_F64331276596_ID0EXT}{\*\bkmkend co_footnoteReference_F64331276596_ID0EXT}{\field {\*\fldinst HYPERLINK "#co_footnote_F64331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb064}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Moreover, stapled financing may enable buyers to bid more boldly by guaranteeing the availability of financing on certain terms.\par}}

}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EAUAE_1}{\*\bkmkend co_g_ID0EAUAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb2003. Being in the Right Place at the Right Time.\par}}}


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{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EMUAE_1}{\*\bkmkend co_g_ID0EMUAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200There are a number of intangible factors that facilitated this particular deal and may, in fact, have been unique to it. An equally motivated seller in a less auspicious context might not be as successful as Neiman, even if it followed thesame formula.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0E2UAE_1}{\*\bkmkend co_g_ID0E2UAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0This deal arrived at a particularly opportune time in both the private equity}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F65331276596_ID0EBV}{\*\bkmkend co_footnoteReference_F65331276596_ID0EBV}{\field {\*\fldinst HYPERLINK "#co_footnote_F65331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb065

}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0and luxury retail industries.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F66331276596_ID0EGV}{\*\bkmkend co_footnoteReference_F66331276596_ID0EGV}{\field {\*\fldinst HYPERLINK "#co_footnote_F66331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb066}}}}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0The depressed state of the US economy since the early 2000s and the passage ofthe Sarbanes-Oxley Act made going private an attractive option for many public companies.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F67331276596_ID0ELV}{\*\bkmkend co_footnoteReference_F67331276596_ID0ELV}{\field {\*\fldinst HYPERLINK "#co_footnote_F67331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb067}}}}

{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0As a company with an excellent management team and targeted marketing strategy,Neiman was reluctant to risk the breakup of the team and disruption of its long-term strategy. At the same time, private equity was booming, and funds were overflowing.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F68331276596_ID0ETV}{\*\bkmkend co_footnoteReference_F68331276596_ID0ETV}{\field {\*\fldinst HYPERLINK "#co_footnote_F68331276596_1" }{\fldrslt


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{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb068}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0With a strong brand, well-defined retail concept, experienced management team,affluent customer base, and readily saleable consumer credit card business, Neiman was an ideal - if expensive - acquisition target. The luxury retail sector had proven itself one of the most resilient to economic shocks and industry fluctuations. It fell}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_249_1}{\*\bkmkend co_pp_sp_111958_249_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*249}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0together perfectly: investors were looking for opportunities, and Neiman was ready to sell.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F69331276596_ID0EDW}{\*\bkmkend co_footnoteReference_F69331276596_ID0EDW}

{\field {\*\fldinst HYPERLINK "#co_footnote_F69331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb069}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Fortunately for the company, market conditions remained favorable throughout the sale process.\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj

{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EMWAE_1}{\*\bkmkend co_g_ID0EMWAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0It also seems likely that the careful matchmaking among potential bidders addedsignificant marginal advantage to those clubs that worked well together, while disadvantaging those that did not. A dysfunctional pairing could easily impair the process of raising large amounts of debt and preparing a strategy to realize returns over a number of years: disagreements could arise over a number of critical areas, including the balance of power, distribution of fees, investment timehorizon, institutional competencies, and governance issues.}{\i0 \fs16 \cf1 \f2 \b0{\*\bkmkstart co_footnoteReference_F70331276596_ID0EXW}{\*\bkmkend co_footnoteRe

ference_F70331276596_ID0EXW}{\field {\*\fldinst HYPERLINK "#co_footnote_F70331276596_1" }{\fldrslt{\i0 \fs16 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb070}}}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0That TPG and Warburg Pincus proved able to work together well was no doubt theresult of careful pairing by Goldman Sachs - but, to a certain extent, it was also a stroke of luck.


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\par}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EAXAE_1}{\*\bkmkend co_g_ID0EAXAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Another factor contributing to Neiman\rquote s successful sale process was simply the quality of the company\rquote s brand, management, and infrastructure. Neiman sold itself from a position of strength; had the company failed to get its reservation price, it simply would have walked away from the auction process. Similarly, had the company been less appealing, the buyers may not have acquiescedto as many of Neiman\rquote s demands. Clearly, having something worthwhile to sell makes the sale much easier.\par}}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \qc \b1{\*\bkmkstart co_g_ID0EVXAE_1}{\*\bkmkend co_g_ID0EVXAE_1}{\i0 \fs20 \sa200 \ul0 \cf1 \strike0 \f2 \b1 \sb200

Conclusion\par}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0E6XAE_1}{\*\bkmkend co_g_ID0E6XAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Controlling the process and protecting the deal were two strategies that playedout particularly well in the Neiman deal. It is still too early to tell if someof the deal terms utilized in this transaction signal a trend in the industry. The reverse breakup fee and the diluted financing out have only been used in twoother private equity deals in the United States - SunGard and Hertz - both of wh

ich}{\i1 \fs20 \cf28 \f2 \b1{\*\bkmkstart co_pp_sp_111958_250_1}{\*\bkmkend co_pp_sp_111958_250_1}{\i1 \fs20 \sa0 \ul0 \cf28 \strike0 \f2 \b1 \sb0*250}}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0were, like Neiman, very attractive properties. For less attractive properties,it may be difficult for sellers to install these provisions without giving concessions in price or other provisions.\par

}}}{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\ri0 \i0 \fs20 \cf1 \f2 \li0 \b0 \qj{\*\bkmkstart co_g_ID0EZYAE_1}{\*\bkmkend co_g_ID0EZYAE_1}{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb200Nonetheless, the Neiman Marcus acquisition is a compelling study in leveraging bargaining power, negotiating dynamics, and controlling auction outcomes. So howdoes a motivated seller extract maximum value, quickly? The answer is a combinat


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ion of factors, including, most prominently, the ability to control the processand guarantee the deal\rquote s completion. In the end, this negotiation was both atypical and successful - a sophisticated approach that met the needs of all the parties involved.\par}}}}}{{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadl200 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrt \clbrdrl \trql \cellx10080\intbl{\ri20 \i0 \ql \fs20 \cf1 \f2 \li20 \b0{\i0 \fs20 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Footnotes}}\i0 \ri20 \fs20 \ql \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3

\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_Fd1331276596_1}{\*\bkmkend co_footnote_Fd1331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_Fd1331276596_ID0ERI" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0d1}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj

{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Harvard Law School, J.D. expected 2007; Harvard Law School, LL.M. 2006; HarvardLaw School and Fletcher Divinity School, J.D./MALD 2006; Harvard Law School, J.D. expected 2007; Harvard Law School, J.D. expected 2007; respectively. We thankour professor, Guhan Subramanian, for his advice and guidance throughout this project.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \ro

w }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F1331276596_1}{\*\bkmkend co_footnote_F1331276596_1}


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{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F1331276596_ID0EQJA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb01}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Bill Dreher & Caroline Costin, Crown Jewel for Potential Sale or Secondary (Deutsche Bank Company Bulletin), Mar. 16, 2006 at 3.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080

\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F2331276596_1}{\*\bkmkend co_footnote_F2331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F2331276596_ID0EVJA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb02}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj

{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0See id.; see also Neiman Marcus Group, Proxy Statement (Form 14-A), at 18 (July18, 2005) [hereinafter Proxy Statement]; Interview with Walter Salmon, Professor, Harvard Bus. Sch., in Cambridge, Mass. (Mar. 20, 2006) [hereinafter Salmon Interview].\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0

\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F3331276596_1}{\*\bkmkend co_footnote_F3331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F3331276596_ID0EZJA" }{\fldrslt


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{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb03}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0See, e.g., Dennis K. Berman et al., Neiman Marcus Nears $5 Billion Deal - TexasPacific, Warburg Bid Trumps Rival Equity Firms; A Long Term Luxury Play, Wall St. J., May 2, 2005, at A3; Dennis K. Berman et al., Today\rquote s Bids for Neiman Marcus May Be Dampened by Soft Market, Wall St. J., Apr. 29, 2006, at C4; Jonathan Birchall & James Politi, Neiman Marcus Sold for $5.1bn, Fin. Times, May 3,2005, at 27 (noting criticism that \u8220\'3fthe deal was struck at the top of the market [and] the buyers might struggle to make money from their investment\u8221\'3f); Nat Worden, Neiman Marcus Is Sold, TheStreet.com, May 2, 2005, http://www.thestreet.com/markets/natworden/10221095.html (quoting the chairman of a retail consulting and investment banking firm as saying that \u8220\'3fit looks tome like [Neiman is] at the very top of the cycle, and that\rquote s a bad time ... to buy the company\u8221\'3f).\par}}

}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F4331276596_1}{\*\bkmkend co_footnote_F4331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F4331276596_ID0E3KA" }{\fld

rslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb04}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Although the family never publicly stated that they were interested in selling off their Neiman stake, industry insiders and analysts nonetheless speculated that the family wanted to move on. See, e.g., Dreher, supra note 1 (\u8220\'3fWe ha

d been anticipating a secondary of the Smith family shares\u8221\'3f); Deborah Weinswig, Charmaine Tang & Tina Hwang, NMGA: Evaluating Strategic Alternatives -What Next?, (Citigroup/Smith Barney), Mar. 2, 2005, at 9 (\u8220\'3fRichard Smith, 81, has been the center of industry discussion that he has been interested inmonetizing this stake in Neiman Marcus.\u8221\'3f).\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \ro


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w }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F5331276596_1}{\*\bkmkend co_footnote_F5331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F5331276596_ID0EBLA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb05}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Salmon Interview, supra note 2 (noting that the family\rquote s decision to selldid not happen in a time-constrained \u8220\'3fcorridor or window\u8221\'3f butrather at the \u8220\'3ffirst opportunity\u8221\'3f).

\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0

{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F6331276596_1}{\*\bkmkend co_footnote_F6331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F6331276596_ID0EQNA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb06}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

See Neiman Marcus Group, Inc., Preliminary Proxy Statement (Form 14A), at 11 (Jul. 8, 1999) [hereinafter 1999 Proxy], for the background to the 1999 Neiman spin-off from Harcourt General.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0


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\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F7331276596_1}{\*\bkmkend co_footnote_F7331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F7331276596_ID0ETNA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb07}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0See id. at 10, describing the limitations that the tax-free distribution may impose on Neiman and the indemnity Neiman provided to Harcourt General for taxes that became payable by Harcourt General due to actions by Neiman Marcus. See alsoBernard Wolfman & Diane M. Ring, Federal Income Taxation of Corporate Enterprise584-85 (4th ed. 2005) (discussing the two- to five-year restrictive window crea

ted by \u167\'3f\u167\'3f 355(d)-(e) for changes of control following a tax-freespin-off under \u167\'3f 355). After 2004, Neiman was beyond the long end of the restrictive window and therefore had very little risk of violating \u167\'3f 355 for the Harcourt General spin-off in a change of control. Robert Willens, Two-Class Stock Spinoffs Leave Vulnerable Castoffs, The Daily Deal, Nov. 23, 1999.}{\field {\*\fldinst HYPERLINK "http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=1969014009&pubNum=0001048&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.Search)" }{\fldrslt{\i0 \fs18 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb0Revenue Ruling 69-407}\i0 \fs18 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0

mentions the \u8220\'3fpermanent realignment of voting control\u8221\'3f requirement of \u167\'3f 355, which means that the two classes of stock cannot be recombined for five years, making sale options more complicated.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3

\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F8331276596_1}{\*\bkmkend co_footnote_F8331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F8331276596_ID0EXNA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb08}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}


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}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Note that the clearing of the tax issues was, at most, a necessary condition toa sale, not a sufficient one. During 2000-03, the Smiths would likely not have been eager to sell even without the tax limitations, because the company\rquote sstock price was depressed.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0

{\*\bkmkstart co_footnote_F9331276596_1}{\*\bkmkend co_footnote_F9331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F9331276596_ID0EPOA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb09}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Salmon Interview, supra note 2.

\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0

{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F10331276596_1}{\*\bkmkend co_footnote_F10331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F10331276596_ID0EZO" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb010}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj


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{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Id.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F11331276596_1}{\*\bkmkend co_footnote_F11331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F11331276596_ID0E4O" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb011}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}

}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Id. (observing that the \u8220\'3fwind was at the back\u8221\'3f of the luxury retail market in early 2005); see also, e.g., Tracie Rozhon, In a Shopping Frenzy: Investors, Flush with Cash, Go After Retail Chains, N.Y. Times, Apr. 14, 2005,at C2 (noting that \u8220\'3f[t]he retailing industry [was] gripped by frenzy\u8221\'3f to sell); Tracie Rozhon, To Cash in on Luxury, Think of Selling the Store, N.Y. Times, Feb. 9, 2005, at C1 (stating that Neiman Marcus would be, according to one expert, \u8220\'3fa coveted but expensive prize ... for a financial t

rophy hunter\u8221\'3f) (internal quotations omitted).\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl

{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F12331276596_1}{\*\bkmkend co_footnote_F12331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F12331276596_ID0EMP" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb012}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl


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{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Proxy Statement, supra note 2, at 20.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F13331276596_1}{\*\bkmkend co_footnote_F13331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F13331276596_ID0ERP" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb013

}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Id. Apart from Saks, LVMH and Nordstrom were also rumored to have an interest ina potential purchase, but none found the resources necessary to mount a seriousbid. Neiman also wanted to be careful not to compromise its luxury retailer profile - not all of these potential strategic buyers had the right image. Salmon Interview, supra note 2. Moreover, Neiman was keen to minimize the possibility ofinformation leaks and competitive risks of sharing information with competitors

. See generally Ellen Byron, Neiman Marcus May Be up for Sale, Wall St. J., Mar.17, 2005, at A3; Is Nordstrom Interested in Buying Neiman Marcus?: Seattle Company Is Mum on Speculation, Seattle Post-Intelligencer, Mar. 17, 2005, availableat http:// seattlepi.nwsource.com/business/216303_nieman17.html.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600

\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F14331276596_1}{\*\bkmkend co_footnote_F14331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F14331276596_ID0EBA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb014


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}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Successfully Managing Private Equity Conflicts of Interest, CapitalEyes (Bank ofAmerica), http:// www.bofabusinesscapital.com/resources/capeyes/a08-04-238.html(last visited Oct. 15, 2006). Stapled financing simply means that the bank advising the target company also arranges for the potential buyer\rquote s financing. Therefore, the buyer, in theory, does not have to seek any additional financing to purchase the company - the target\rquote s bankers have already \u8220\'3fstapled\u8221\'3f the necessary financing contracts to the purchase agreement. Buyers often use these contracts as a baseline or BATNA for negotiating with otherthird-party lending sources.\par}}}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr

3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0{\i0 \fs20 \cf1 \f2 \b0{\*\bkmkstart co_footnote_F15331276596_1}{\*\bkmkend co_footnote_F15331276596_1}{\field {\*\fldinst HYPERLINK "#co_footnoteReference_F15331276596_ID0EFA" }{\fldrslt{\i0 \fs20 \sa0 \ul0 \cf5 \strike0 \f2 \b0 \sb015}\i0 \fs20 \sa0 \cf5 \ul0 \f2 \strike0 \b0 \sb0 }}}

}\i0 \ri120 \fs20 \ql \cf1 \f2 \li120 \b0 \intbl \cell \intbl{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\ri20 \i0 \fs18 \cf1 \f2 \li20 \b0 \qj{\i0 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \b0 \sb0Telephone Interview with James Westra, Partner, Weil, Gotshal & Manges LLP, in Boston, Mass. (Mar. 14, 2006) [hereinafter Westra Interview]. None of the bidders, including the winning bidders, used Goldman\rquote s stapled financing. However, Goldman was part of the final financing arrangement. Neiman Marcus, Inc. Annual Report (Form 10-K), at 36 (Sept. 16, 2005).\par}}

}}\i0 \ri20 \fs18 \sa0 \ul0 \cf1 \strike0 \f2 \li20 \b0 \sb0 \qj \intbl \cell \row }{\trowd \itap0 \trleft0\clpadt20 \clpadft3 \clpadb100 \clpadfb3 \clpadl100 \clpadfl3 \clpadr20 \clpadfr3 \clbrdrl \trql \clvertalt \cellx600\clpadt20 \clpadft3 \clpadb90 \clpadfb3 \clpadl90 \clpadfl3 \clpadr20 \clpadfr3\clbrdrr \trql \cellx10080\intbl{\ri120 \i0 \ql \fs20 \cf1 \f2 \li120 \b0

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Case Study Selling Neiman Marcus

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