With Saks, Neiman Marcus and J.C. Penney the subjects of takeover rumors, who would buy excess property?

Belk, Kohl's and Target could be the big winners if Saks Inc. decides to sell its department store group, say analysts. Saks went to the top of the list of potential buy-outs last week on news reports that the company is courting buyers for both its mid-level department store group and high-end Saks Fifth Avenue.

Saks wasn't the only department store chain making headlines. Neiman Marcus said it hired Goldman Sachs & Co. to explore "strategic alternatives" to enhance shareholder value, such as selling the retailer. Also, rumors circulated that an investment group led by Cerberus Capital Management LLP and Carlyle Group might buy. J.C. Penney Co. The talk died down and shares steadied after it was reported that Cerberus has a history of buying distressed companies, such as Mervyn's, not thriving ones such as Penney. Penney's appeal was heightened by Federated Department Stores Inc.'s $11 billion play for St. Louis-based rival May Department Stores Co. Analysts expect Federated to upgrade May's merchandise, opening up room for Penney in the mid-price level.

Saks did not comment.

Management has initiated a turnaround plan for Saks Fifth Avenue--profits were up 19 percent in 2004. But sales at the firm's department store group, which includes anchors like McRae's, Parisian and Proffitt's, were down 12 percent last year to $3.7 billion. "The mid-tier department store has been a thorn in their side for a while," says Katherine Galligan, an analyst at Aperion Group LLC. "If someone where to acquire it, they probably wouldn't take the whole thing, but cherry pick the best properties." Blackstone Group and Apollo Real Estate Advisors have been reported as interested parties who would probably sell off individual pieces to retailers.

Worth an estimated $1.5 to $2 billion, Saks department store group is based in the Southeast, Midwest and the Great Plains. "I think it's a huge opportunity for Target," says Bill Dreher, a senior retail analyst with Deutsche Bank North America. "Target said they are equally comfortable with mall-base locations as well as off-mall base locations."

Currently, Target has about 100 stores at malls, says Dreher.

Belk Inc., which operates 229 department stores in 14 southeastern states and has geographic overlap with Saks, has also been considered as a potential buyer. "Belk may want some more stores in places where they want a bigger presence," says Howard Tubin, a retail analyst at Cathay Financial. It wouldn't be the first time Belk has used Saks portfolio to expand.

Earlier this year, Belk purchased the leases of four Proffitt's department stores in eastern North Carolina, three of which were at malls.

Galligan says she doesn't see another mid-tier department store buying any real estate from Saks. "It would be hard to think that a Federated or Dillard's would want to do that, because there is so much overlap already at malls," says Galligan. "The more probable would be a Target's or a Kohl's." Galligan says Kohl's Corp. is another potential buyer as it looks to expand beyond its West Coast base.

-- David Koch