Others with deep pockets also are seeing value in Saks' stock. Marsico Capital Management reported to the SEC Friday that, by the end of January, it had upped its stake in the retailer to 23.2 million shares, or 16.4 percent of those outstanding. The fund held 10.4 percent of the firm a year earlier.

The incremental investment strategy is one that is being seen across the entire market. Private equity firms and hedge funds have switched gears from making leveraged buyouts (that stack the acquired company's balance sheet with borrowed debt) to taking straight stock positions in public companies.

As a result, data from FactSet Mergerstat shows a clear deceleration of M&A activity. In 2007, the total number of retail and apparel transactions was 349, which is well below 2006's 421 deals.

Should negotiations for Saks take longer than expected, there's the chance another bidder might come in and try to snap up the company. One name that came up again is NRDC Equity Partners.

NRDC, owner of Lord & Taylor and Creative Design Studio, has in the past expressed interest in purchasing Saks. However, informed sources say it's a dead issue as of now with little hope talks could revive in the near future. "There's no money out there," said a source.

Another source said he believes NRDC considers Saks too expensive. NRDC is also close to closing a deal to buy Fortunoff, which has declared bankruptcy. NRDC has formed NRDC Acquisition Corp. to raise $360 million for the possible purchase of one or more operating companies.

Aside from Lord & Taylor, NRDC is looking at several smaller deals, recently purchasing the Peter Som Inc. designer business and seeking further acquisitions in the fashion and retail industries.

An analyst on the sell side said it made more sense for Baugur to own Saks than a U.S.-based private equity firm such as NRDC because "Baugur can takes and make it a global brand. One can look at House of Fraser as the playbook that is already in place."

In addition, given the weakness of the dollar against the euro, a takeover of Saks by an overseas firm is seen as more likely than by a U.S. entity, observers said. Baugur could raise the funds to buy Saks in European markets, making a dollar-denominated takeover a relative bargain.

— With contributions from Evan Clark, David Moin and Arthur Zaczkiewicz