Sycamore Partners Walks Away From Talbots

May 25, 2012 9:52 PM  By

Private equity firm Sycamore Partners, which had been involved in exclusive negotiations with financially troubled women’s apparel merchant The Talbots, said it’s not prepared to execute a deal at this time. The announcement came today after an exclusivity agreement signed by both sides earlier this month expired on Thursday.


According to a press release, Talbots said it remains open to pursuing a transaction with Sycamore Partners. Sycamore Partners, which owns nearly 10% of Talbots, offered to buy the company for $3.05 a share. Talbots rejected a bid from Sycamore Partners in December, but earlier this month Sycamore Partners upped its offer from $3 a share to $3.05 per share to acquire outstanding stock of the company. Sycamore Partners’ latest offer translates to about $211 million.

Talbots’ stock sank about 39% since the close of business Thursday and is currently trading around $1.56 per share. Company stock traded at $8.52 a share at the end of 2010. Talbots said it will continue to explore strategic alternatives.

Talbots just released its first-quarter financial results and, although sales dropped, net income jumped 49%, to $1.1 million, up from $739,000, for the quarter ended April 28, 2012. Net sales decreased 8.4%, to $275.9 million, compared to $301.3 million in the same period last year, due in part to the impact of store closings in fiscal 2011 as a result of the company’s store rationalization plan.

Direct marketing sales fell 5.8%, to $57.0 million, compared to $60.5 million in the same period last year.

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 plans to close about 110 locations.

Neil Stern, retail analyst and senior partner for retail consultancy McMillan/Doolittle, said it’s possible that business conditions changed and this might be an opportunity for further negotiation. If not, “they could open up the bidding process again which extends the timeline. I suspect that there would still be value driven bidders who might emerge.”

But Chris Kampe, managing director with investment firm Tully & Holland, said Talbots doesn’t have many options. “I imagine that the party with the least leverage will come back to the table,” Kampe said.

Based solely on the financials of Talbots, Kampe also believes the company could be headed for bankruptcy.

Talbots has posted losses in four of the past five years. Last year Talbots announced plans to close about 110 stores through fiscal 2013, bring in new merchandising and marketing talent and rework its product line to get customers back.

Abe Garver, principal at Focus Investment Banking, said Sycamore Partners’ offer of $3.05 per share was too high. He said “the straw that breaks the monkey’s back” is Talbots is a public company. “If the company had been private, the board of directors and Sycamore Partners would have come to an agreement, which I believe would have been below $3.05 per share.”

Because The Talbots is public, Garver said, “its board was petrified by the prospect of another round of lawsuits, alleging breach of fiduciary duties in connection with its conduct related to the proposed sale of the company.”

Garver is unsure what might happen now, but he said all the stakeholders are negatively affected – employee, management and board morale; Sycamore Partner’s desire to re-engage in another deal; and the company’s stock and financial outlook.

Jim Tierney (jim.tierney@penton.com) is a senior writer for Multichannel Merchant. You can connect with him on Twitter (TierneyMCM) and LinkedIn, or call him at 203-358-4265.