Charming deal for Crosstown

Mergers and acquisitions continue to heat up, but in the latest big industry deal, a private equity firm is the seller, not the buyer: Bensalem, PA-based women’s apparel retailer Charming Shoppes is buying multititle mailer Crosstown Traders from JPMorgan Partners, the private equity arm of J.P. Morgan Chase & Co.

Tucson, AZ-based Crosstown Traders was formed when JPMorgan bought the Arizona Mail Order apparel catalogs and food gifts book Figi’s from Federated Department Stores in October 2002. JPMorgan Partners will receive approximately $218 million in cash for Crosstown Traders, whose sales last year were roughly $460 million. In addition, the $2.3 billion Charming Shoppes will assume Crosstown Traders’ debt, which sources estimate is anywhere from $45 million to $90 million. The deal is expected to close by the end of the second fiscal quarter.

Charming Shoppes operates four retail chains: Fashion Bug, Fashion Bug Plus, Catherines Plus Sizes, and Lane Bryant. Like Charming Shoppes, Crosstown Traders specializes in women’s apparel. Its 11 titles include Brownstone Studio, Old Pueblo Traders, and Coward Shoe.

With the purchase, Charming expands its revenue and adds Crosstown’s nearly 4 million house file names to its customer base. At the same time, Charming Shoppes’ expertise in proprietary credit, its customer database of 29 million names, and its ability to direct source will no doubt help Crosstown continue to grow.

But the Lane Bryant brand is where the true synergies of the deal may lie. New York-based multititle mailer Redcats USA currently owns the Lane Bryant catalog, but the catalog trademark reverts back to Charming Shoppes in October 2007 — at which time Charming intends to launch its own Lane Bryant catalog. As Charming Shoppes chairman/CEO/president Dorrit Bern said in a statement, the acquisition “is a key step in our preparation for the launch of our own catalog.”

In October 2004, Charming Shoppes hired catalog verteran Stephen Marks, formerly at Brylane/Limited as well as Hanover Direct, as senior vice president, direct-to-consumer. Says Charming Shoppes spokesperson Gayle Coolick, “We knew we need a seasoned executive to run that business. What we really know is how to operate and open stores.”

Crosstown Traders will continue to operate as a separate entity. It will remain based in Tucson, and Steven Lightman will continue to serve as president.

Meanwhile, Redcats USA, which would not comment for this story, is presumably trying to migrate Lane Bryant catalog customers to its other titles before it loses the rights to the book. In February, Redcats launched Intimate Promise, a 72-page catalog selling plus-size lingerie, sleepwear, and swimsuits.

“Redcats has limited options,” says David Solomon, managing director and partner for New York-based investment bank Goldsmith Agio Helms. “Maybe they try to rebrand the catalog, sort of changing the signage in the window without disrupting the business. Or they sell the Lane Bryant catalog business to Charming right now,” although Solomon doubts that would happen, because Redcats would have no leverage in that transaction.

Banc of America Securities acted as exclusive financial adviser to Charming Shoppes in this transaction. Goldman, Sachs & Co. and GLC Securities Corp., an affiliate of Gruppo, Levey & Co., advised Crosstown Traders.

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