Talbots Accepts Lower Sycamore Bid in $369 Million Takeover
Talbots Inc. (TLB), the women’s clothing retailer trying to reverse falling sales, agreed to be bought by private-equity firm Sycamore Partners for a reduced price of $369 million, including debt.
Stockholders will get $2.75 a share, the Hingham, Massachusetts-based retailer said today in a statement. The offer is lower than Sycamore’s previous offer of $3.05 a share and more than more than double yesterday’s closing price of $1.29 a share.
Talbots accepted the lower bid after last week saying it had failed to reach an agreement with Sycamore during 2 1/2 weeks of exclusive talks. The retailer, established in 1947, has closed 90 locations since March 2011, posted five consecutive years of sinking sales and has yet to name a replacement for retiring Chief Executive Officer Trudy Sullivan.
“It’s a near-desperation move,” said Buzz Zaino, a New York-based money manager at Royce & Associates LLC, which had a 2.1 percent stake in Talbots at the end of the first quarter. “They lost their focus and it’s been hard for them to get it back.”
The new offer by Sycamore for the 90.1 percent of Talbots that the private-equity firm doesn’t already own values the company’s equity at about $174 million. That equals 0.17 times its reported sales, the lowest revenue multiple ever paid for a U.S. apparel retailer in deals worth at least $100 million, according to data compiled by Bloomberg.
Sullivan, who is stepping down in June, became CEO of Talbots in August 2007, after Liz Claiborne Inc. eliminated her position as president of that company. Since then, Talbots shares had tumbled 94 percent through the close of regular trading yesterday, as Sullivan sought to revamp the company’s strategy in the midst of the worst U.S. financial crisis since the Great Depression.
Talbots introduced cocktail dresses and stilettos to appeal to younger shoppers and in doing so alienated some of its traditional customers, who tend to be women over 35.
“Part of it is the macro environment, and part of it is when you essentially fire your old customer and try to hire a new customer, that takes a lot of time and a lot of money,” said Jennifer Davis, an analyst at Lazard Capital Markets in New York. “It’s a lot easier to do that as a private company, not a public company.”
Sycamore probably has enough retail contacts to bring in a successful new executive to lead Talbots, Davis said.
The company’s May 25 announcement that it would explore other strategic alternatives sent shares to their lowest level since December 2008. Talbots said at the time it remained open to pursuing a transaction with New York-based Sycamore at $3.05 a share if the firm obtained financing commitments and there was an assurance the deal will close.
The retailer rejected a $3-a-share bid from Sycamore in December as “substantially” undervaluing the company, and then said in January that it had agreed to share confidential information with the private-equity firm tied to a possible business combination.
Talbots was probably counting on its spring line of products to negotiate a better offer, and the results didn’t pan out, Royce & Associates’s Zaino said. Comparable-store sales, including catalogs and the Internet, declined 3.8 percent in the first quarter ended April 28.
“I’m sure there’s a point in time where suppliers get a little nervous and the banks get a little nervous, so the sale looks like a resolution in a deteriorating situation as opposed to an improving situation,” Zaino said.
Sycamore disclosed in August 2011 it had purchased a 9.9 percent stake in Talbots. The private-equity firm is led by founder Stefan Kaluzny, a former managing director at Golden Gate Capital, where he was also chairman of Express Inc., the clothing chain that targets 20- to 30-year-old men and women.
“Talbots has significant potential and remains a premier, storied brand,” Kaluzny wrote in a letter to the company’s board of directors in December. “The steps necessary to maximize the value of Talbots’ assets will require more aggressive action than has been taken to date and which would be extremely difficult to execute while remaining a public company.”
The transaction is expected to close in the third quarter, Talbots said. Perella Weinberg Partners LP is the retailer’s financial adviser with White & Case LLP as its legal counsel. Sycamore Partners retained Bank of America Corp. and Winston & Strawn and the law offices of Gary M. Holihan for legal counsel.
“Historically, if you asked customers, ‘Who shops at Talbots?’ they would say ‘my mother,’ even if it was a 50-year- old woman,” Lazard’s Davis said. “It had this image of being a brand for older people,” with updated, classic, tailored apparel, she said.
The company has downsized in recent years. As of Jan. 28, Talbots had 1,105 full-time employees compared with 3,850 five years ago, and operated 516 stores at the end of the first quarter from more than 1,000 in the year ended Feb. 2, 2008. Under Sullivan’s tenure, the company closed its men’s, kids and U.K. businesses, sold its J. Jill brand business and introduced an “upscale outlet” concept.
Private-equity firm Golden Gate acquired J. Jill for $75 million in 2009, underscoring Kaluzny’s familiarity with Talbots, Pamela Quintiliano, a New York-based analyst at Oppenheimer & Co., wrote in a note today.
Sullivan held 507,400 shares of Talbots as of April 4, or 0.72 percent of the company, according to data compiled by Bloomberg. A $1.4 million payout from that may add to her $5 million cash severance payment and related benefits, regulatory filings show.
“As a private company, we will have greater freedom to focus on longer-term investments and opportunities, while providing you with rewarding careers, excellent benefits and challenging roles,” Sullivan wrote in a letter to Talbots associates today, disclosed in a regulatory filing. “During this time, the most important thing you can do is to continue performing your role at the highest level and delivering outstanding value to our customers.”
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