Bidding for the Acquisition of Barney’s
https://www.wsj.com/articles/saks-owner-joining-authentic-brands-in-nearly-270-million-bid-for-barneys-11571066747?mod=searchresults&page=1&pos=1
This article is about the bidding that is currently happening for the department store Barney’s, which filed for bankruptcy in August after its New York City landlord tried to double the rent. Now that Barney’s has filed for bankruptcy, other companies are submitting bids in hopes of acquiring the well-known clothing department store. Barney is looking for buyers in order to prevent liquidation of the store, and there are currently two major competitors seeking to acquire the store. One is Authentic Brands Group LLC, a company which owns a number of major brands including Nine West. The other high-profile potential buyer is a group of investors led by Sam Ben-Avraham. While the group of investors does not own any major brands, many of the individual investors have experience in retail and envision a new path for the department store.
The bidding for Barney’s department store is similar to the ascending bid, or English auctions that we studied in class. Though the situations are not exactly identical, the concepts of an English auction can still be applied to what is currently happening with Barney’s. It can be compared most accurately to an English auction because bidders are able to see the values of other bidders. They can stay in the auction and continue to make bids until they reach their true value, at which point the bidder will drop out. Because the dominant strategy for a bidder is to not bid past their true value, the winning bidder will be able to bid just above the second highest bid, thus still making a profit from their bid. Because the auction is public, bidders should not have their initial bidding price equate to their true value. Though it is unknown what the true values of Authentic Brands Group LLC and Ben-Avraham’s group are, we can assume that they are following this strategy and bidding their initial bids below their true value. This assumption is based on each bid as a whole. The bids include dollar amounts as well as explanations of what each bidder will transform Barney’s into. Authentic Brands Group LLC wants to license the department store to Saks, while Ban-Avraham’s group wants to turn Barney’s into a single location retailer that features newer designers. Each bidder is able to bid less than their true monetary value by also providing their visions for what the retailer will become. Each bidders’ new plans are considered as part of the total bid so that while the monetary value might be lower than their actual price, they are still providing other values that are important to the acquisition of Barneys. After giving initial bids and seeing the prices of other bidders, Authentic Brands Group LLC and Ben-Avraham’s group are both able to submit new bids with higher monetary values, or leave their current bid as it stands and hope that the non-monetary value they provide outweighs the higher monetary bid of another group.