Investment Group Takes Over Control of Talbots

Troubled women’s apparel cataloger/retailer The Talbots has received a new lease on its financial life following an intricate transaction.

BPW Acquisition Corp., a Stamford, CT-based special purpose acquisition company, announced Dec. 8 it entered into a definitive merger agreement in which it will be acquired by The Talbots, but BPW’s shareholders will own between 60% to 69% of Talbots’ common shares.

According to the merger agreement, the proceeds of BPW’s cash-in-trust of approximately $350 million–in conjunction with additional financing obtained by Talbots, including a new $200 million revolving credit facility for which a commitment has been received from GE Capital–will be used to retire all of Talbots’ existing debt.

What’s more, Talbots will acquire all of the outstanding shares of Talbots common stock held by majority shareholder Aeon, which represents more than a 54% stake. As part of the transaction, the sponsors and certain directors of BPW will surrender an aggregate of 1,852,941 shares of BPW common stock, or about 30% of the shares held by the sponsors and such directors.

Trudy Sullivan will remain president/CEO of Talbots, and will continue to lead the current management team, which is implementing a turnaround of the company. The transaction requires BPW stockholder approval.

Talbots has had its share of tough times. Earlier this year it slashed costs in a bid to cut $150 million from its budget, including cutting 370 positions, eliminated merit raises, and closed 20 underperforming stores, and sold its J. Jill business.

But profitability is looking up. For its third quarter ended Oct. 31, Talbots saw its net income from continuing operations reach $15.5 million, compared to last year’s net loss from continuing operations of $14.8 million. Total sales slipped 13.5%, to $308.8 million, from $357.2 million. Direct sales were flat; $53.5 million from $53.8 million last year. Retail sales decreased 18.8%, to $255.4 million, from $303.5 million. Same-store sales dropped nearly 16%.

The new financial deal should help Talbots, says Adrienne Tennant, managing director and group head, consumer, for FBR Capital Markets. She commends Talbots’ management for its third-quarter return to profitability after five straight quarters with losses. “We believe it will continue to manage elements of the business under its control,” she says.

Furthermore, Tennant says, Talbots is making huge strides in improving margins. “Our store checks show ongoing tight inventory control and more efficient use of promotions and markdowns to continuously move product,” she says. “We believe that transactions announced will materially improve the company’s liquidity and the reduction in interest expense should outweigh the dilution to the share count.”

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