In a turn of events befitting a soap opera, Hingham, MA-based The Talbots, and not New York-based Liz Claiborne, purchased Quincy, MA-based cataloger/retailer J. Jill for $517 million or $24.05 per share.
The acquisition, subject to Hart-Scott-Rodino antitrust clearance, is expected to close by May.
New York-based Liz Claiborne had been trying to acquire J. Jill for the past two years, but each time the cataloger/retailer rebuffed its offers. In its latest offer, on Nov. 18, Claiborne offered $366 million, or $18 a share. Talbots is paying 34% more than Claiborne was willing to, and 85% more than J. Jill’s Nov. 17 closing price of $12.76 a share.
“That’s a big number for an underperforming company,” says Craig Battle, managing director for Princeton, NJ-based investment bank Tucker Alexander. Although J. Jill’s sales have risen during the past few years, from $347.6 million in fiscal 2002 to about $450 million for fiscal 2005, much of that was due to its retail expansion. In 2004 its combined catalog/Internet sales were $191.0 million, down almost 5% from $200.2 million in 2003, on a 2% cut in circulation.
Then again, while at first glance the price seems immoderate, “perhaps the purchase price isn’t so steep,” Battle continues. For one thing, there are considerable synergies between the two brands. J. Jill’s core audience of women 35-55 years old can act as a feeder system of names for Talbots, which targets women ages 45-65. Additionally, there’s about $25 million in cost-savings which could be wrung out of duplicative back office functions, such as finance and administration.
Then, too, the competitive landscape is changing radically, as private equity buyers such as Golden Gate Capital pick off women’s apparel merchants one by one. The $1.8 billion Talbots may have feared becoming a small player backed into a corner. “There’s so few companies left of size in catalog and retail that have critical mass,” Battle says. “It’s survival of the biggest.”
Though Talbots was not immediately available for comment, a statement by chairman/president/CEO Arnold Zetcher provided a glimpse into its plans: “Our current plan is to continue to operate separately areas such as merchandising, stores, catalog, Web, marketing, and visual and store sign. At the same time, we believe we will benefit individually and collectively from the combined talent and expertise of our dedicated associates in both organizations.”
Talbots will finance the transaction with a $400 million loan and cash, according to a release. J. Jill will continue to operate under its name and will retain its Quincy headquarters.
Paul Charron, chairman/CEO of spurned suitor Liz Claiborne, said in a statement, “We are disappointed that we were unable to acquire J. Jill at a price that makes sense for our shareholders. However, we are financially disciplined and will not overpay.”