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$2.4b deal combines Lord & Taylor, Saks

Hudson’s Bay now upper-tier chain of upscale stores

Saks Fifth Avenue in Manhattan is the landmark store of Hudson’s Bay Co.’s acquisition.Richard Drew/associated Press

NEW YORK — The parent company of Lord & Taylor bought Saks Inc. Monday in a $2.4 billion deal that creates a North American behemoth of upscale shopping.

The acquisition by Hudson’s Bay Co., Canada’s biggest department store chain, combines three store brands — Hudson’s Bay, Lord & Taylor, and Saks Fifth Avenue — with 320 stores.

During a conference call with investors, Hudson’s Bay chief executive Richard Baker said the goal is to bring Saks luxury brand into Canada. The company plans to open seven Saks Fifth Avenue stores and 25 Off Fifth outlet stores in Canada, while creating a Saks website targeting Canadians. The company also plans to renovate Saks stores and to make the brand more ‘‘luxurious.’’

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Hudson’s Bay is making a play for luxury at a time when shoppers still appear to be willing to shell out money for posh handbags and clothing despite economic challenges. Global luxury sales, including higher-end jewelry and clothes, rose 10 percent to $281.96 billion last year, according to the latest study from Bain & Co. In North America, luxury sales were up an estimated 12 percent to $81.33 billion.

Still, Saks has lagged behind its peers, Neiman Marcus and Nordstrom. After getting battered by the Great Recession, Saks discounted heavily to bring shoppers back. That move hurt the chain’s image.

Saks since has returned to selling clothes and other merchandise at full price and focused on closing unprofitable stores. But its sales haven’t rebounded quickly.

In the latest fiscal year, Saks reported annual revenue of $3.15 billion, up more than 4 percent from the previous year but still below the $3.28 billion in the year ended in January 2008. Saks’ net income fell nearly 16 percent to $62.8 million in the latest year.

Belus Capital Markets analyst Brian Sozzi said that Saks shopping experience isn’t as inviting as that of Nordstrom and Neiman Marcus. For example, Nordstrom has been providing services such as allowing shoppers to check out in fitting rooms using sales associates’ hand-held gadgets. And Neiman Marcus, which didn’t suffer during the Great Recession, has a long-held reputation for coddling its affluent shoppers through its loyalty programs.

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‘‘There has been a lot of promise in terms of potential but Saks hasn’t lived up to the hype,’’ Sozzi said.

Still, Hudson’s Bay sees promise in Saks. Hudson’s Bay will pay $16 per share for Saks, a 5 percent premium over the company’s Friday closing price of $15.31. The companies put the deal’s total value at about $2.9 billion including debt.

Saks’ stock jumped more than 4 percent, or 64 cents to $15.95 in Monday trading. Shares are up 48 percent for the year to date.

The acquisition will marry two storied retailers. Hudson’s Bay was founded in 1670 as a trading firm for furs and other goods. It is considered the oldest company in operation in North America.

The company has seen steady revenue increases. For the fiscal year ended Jan. 28, 2012, revenue rose 5.9 percent to $3.94 billion. The company had a loss of $43.4 million from the year-ago profit of $1.40 billion as results were dragged down by one-time costs.

Founded in 1924 by Horace Saks and Bernard Gimbel, Saks’ flagship store on Fifth Avenue in New York City is a landmark of retailing and sits on some of the most valuable real estate in the world. The company employs about 15,000 people across 41 stores. Saks will continue to run as a separate company under Hudson’s Bay.

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