By Michael Bogan

Shares of Saks Inc. (NYSE: SKS) soared Tuesday on a speculative rumor or leak—intentional or not—that the luxury retailer is under scrutiny for takeover by a group of U.S. and U.K. private equity firms.

The Daily Mail reported that unnamed sources told the U.K.’s No. 2 paper that a consortium of private equity firm have nearly completed its due diligence and intend to offer $11 per share for Saks in an all-cash deal worth $1.7 billion.

Saks spokeswoman Julia Bentley said the company has no comment on the Daily Mail story.

If this rumor (leak) turns out to be fact, Saks presently trades at a 29% discount to the rumored offering price. SKS closed at $7.90 on Tuesday, up 19.70% on the day.

Is it worth the gamble to jump on-board for what could be a gain of 40% on the quick?

Consider the environment and the position, in which, private equity funds find themselves. These funds take in high-powered money from high-powered investors expecting decent returns on their cash. Buying companies when times are tough is what these funds do, presumably when prices are also tough on current stockholders.

In the case of SKS, the stock trades today at 35 cents on the dollar from its high of nearly $23 pre-Bear Stearns collapse. An $11 offer is still a 50 cents on the dollar purchase from late 2007.

With same-store sales expected to reach 6.2% growth (y-o-y) in August, Saks outpaces the industry average of 2.8%, according to analysts surveyed by Retail Metrics.

Following the “sky-is-falling” scare of 2008 and subsequent collapse in retail spending, luxury shoppers have been creeping back into Saks stores.

“It’s the brand name: Saks sells,” said Sachin Shah, analyst for Capstone Global Markets in an interview with Bloomberg. “Brand names work and the fact that they sell more of the high-end merchandise bodes well in a flat economy, because luxury goods typically do relatively better.”

Saks appears stable, and money is flowing again in M&A. In fact, M&A hasn’t been this good in more than a decade, according to Reuters, which reports that $262 billion was in play in August. The last time total deals reach this dollar level was back in August of 1999, during which $275 billion was spent on buying and merging.

“The financing environment is far better than 12 to 18 months ago,” said Craig Johnson of Customer Growth Partners in an interview with MarketWatch. “Timing is favorable,” he said.

Confidence in Saks’ management to negotiate through the great recession as well as the availability of financing—now that the economy appears to have moved away from the brink—lends credence to the Daily Mail report.

And there’s one more factor that could attract a suitor to SKS. Real estate.

“Someone making a major investment in retail is likely counting on the rebounding of the overall economy and thinking that they are buying the assets or stock at a low price,” said Barry Greenstein, senior vice president with Aon Consulting Corporate Transactions.

Half of SKS assets comprise of real estate, some half a billion dollars worth of well-located buildings too.

Moreover, large investors ooze from this stock. Mexican billionaire Carlos Slim and Italian luxury label Tod’s investor Diego Della Valle own more than 25% of the company. And Blackrock? It owns 8.8 million shares, or 5.5% of outstanding shares, according to Jun. 30 SEC documents.

All of this makes for a wonderful story to excite players into the trade, doesn’t it?

Maybe.

Or could it be that the tabloid, Daily Mail, was used and duped into triggering a huge short squeeze in the stock, making someone some serious cash in out-of-the-money calls?

Maybe.

According to Yahoo, as of Aug. 13, the percentage of total outstanding shares sold short is a whopping 34.9%.

That a lot of juice to squeeze.

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