Just when you thought The Talbots would be unable to attract a suitor, private equity firm Sycamore Partners finally struck a deal today to acquire the financially troubled women’s apparel merchant for $193.3 million, or $2.75 per share in cash.
Sycamore Partners, which already owns nearly 10% of Talbots, will acquire all outstanding common stock of Talbots for $2.75 per share in cash. Sycamore Partners made two previous offers of $3 per share and $3.05 per share. According to the agreement, the companies said that the current transaction is valued at about $369 million, including debt.
The transaction is expected to close in the third quarter of this year. The $2.75 per share represents a premium of 113% compared to the stock’s close on Wednesday.
Talbots has seen its sales drop for five straight years while seeking a younger demographic – alienating its core customer – women over 35.
Abe Garver, principal at Focus Investment Banking, said the reduced purchase price is consistent with what has transpired during the negotiation process. “Talbots is not worth $3.05 a share and Sycamore had a superior position in the negotiation. Given Sycamore’s superior negotiating posture, and $1.29 fair market value for Talbots shares yesterday, I’m not sure what would compel a private equity group investor to pay that kind of premium to market.”
Garver said a deal had to happen for Talbots to avoid bankruptcy. But one thing is for certain, Garver added. “The Sycamore deal breathes new life into Talbots. What happens from here is anyone’s guess.”
Sycamore Partners’ previous offer for Talbots translated about $211 million. Company stock traded at $8.52 a share at the end of 2010.
Talbots closed eight locations, including five full stores, during the first quarter of fiscal 2012 and has closed 90 locations in total, including 74 full stores, since the acceleration of the company’s store rationalization plan in March 2011. Talbots planned to close about 110 locations through fiscal 2013, bring in new merchandising and marketing talent and rework its product line to get customers back.
“They’ll probably close some stores and certainly there will be a focus on getting back to the basics and on Talbots traditions, and being a little more conservative on the merchandising side,” Stern said. “Right now the company needs to be stabilized before you can consider how it might grow again.”
Stuart Rose, managing director with investment firm Tully & Holland, believes Sycamore will take a “much more aggressive tone to its turnaround. More stores will close, people will be laid off or fired. This will happen at an accelerated pace. It is likely that Sycamore has a CEO ready and waiting. The merchandise will be re-vamped and it’s very likely that the company will return to its core customer.”