Fast Retailing's surprise $900 million bid for Jones Apparel Group's Barneys New York underscores the Japanese clothing retailer's dream to become a global player and find growth outside its mature home market.

The acquisition would be Fast Retailing's biggest to date and put to use a war chest of $1.3 billion that has been on hold since the company gave up on a bid for Hong Kong's Giordano International last year.

Fast Retailing has vowed to expand abroad and they have plenty of cash to do it, said Dairo Murata, an industry analyst from Credit Suisse in Tokyo. Even if this one falls through, they will just go on looking for something else.

The company, well known at home for its Uniqlo casual clothes brand, said late on Thursday it had made the bid for Barneys, an upscale fashion store, topping an earlier $825 million offer by Istithmar, a Dubai-owned private equity firm.

Having built up an empire of more than 700 stores in Japan, Tokyo-based Fast Retailing has pledged to expand abroad and invest as much as 400 billion yen ($3.25 billion) over the next three years on mergers and acquisitions to almost double its annual sales to 1 trillion yen by 2010.

Fast Retailing, which is said to have been hiring former investment bankers, is betting big on Barneys.

The Japanese firm's offer beats the existing Istithmar bid by 9 percent, and is more than double the $400 million that Jones paid for the New York fashion retailer in 2004.

The $900 million price tags puts Barneys at a price-earnings ratio of around 25, based on fiscal 2007 forecasts provided by Goldman Sachs, which is above the average of 21 for the global apparel retail sector, according to data compiled by Reuters.

Goldman Sachs analysts estimate Barneys New York generated about $720 million in sales in fiscal 2006. The retailer, which operates 34 outlets, probably earned an annual operating profit of $46.8 million on a margin of 6.5 percent.

Acquiring a retailer outside of its core business of casual clothing could be positive for Fast Retailing, said Soichiro Monji, chief equity strategist of Daiwa SB Investments.

If you are a company hoping to get fairly large, such as Fast Retailing, you can't keep your focus only on Japan. You eventually have to go abroad. So I think this is a positive.

In the year ended last August, Fast Retailing's sales totaled 449 billion yen, up 17 percent from a year earlier. Annual net income rose 19 percent to 40 billion yen.

Shares of Fast Retailing closed down 1 percent to 8,400 yen in Tokyo on Friday, while the overall market slipped 0.4 percent.

WEAK JAPAN SALES

Fast Retailing Chief Executive Tadashi Yanai told reporters in April that his company is also looking to acquire a European clothing brand without naming specific targets.

The Japanese maker has a good track record on acquisitions.

In 2004, Fast Retailing took a stake in Link Theory Holdings, the operator of Theory stores. It also bought shares in French brands Comptoir des Cotonniers and Princesse Tam Tam in 2005.

Global expansion has been a longtime goal for Yanai, whose Uniqlo brand has often been called the Gap of Japan, resembling the U.S. chain in its offerings of fleece jackets, jeans and other affordable items to the mass market.

Uniqlo gained a foothold in the U.S. market last year when it opened its first flagship store in New York City, but the U.S. business is expected to post a loss this business year, according to local media reports.

In China, Fast Retailing was reported to be interested again in a stake in Giordano, along with Hong Kong-listed Esprit and Spain's Zara, the South China Morning Post said last month.

Fast Retailing's ambition for expansion comes as it struggles to boost earnings at home where consumer spending and wages still remain sluggish despite steady economic recovery.

In April, the company trimmed its annual net income forecast for the second time this year after an unusually warm winter forced it to cut prices of seasonal items.

Uniqlo's June same-store sales were down 1.3 percent from the same prts are only half done, analysts at Nomura Securities wrote in a note to clients on Thursday. But given their rich cash flow, we expect them to continue with their revamp efforts in the mid-run.

(Additional reporting by David Dolan)

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