Express Inc. (EXPR), a struggling clothing retailer that targets shoppers in their 20s, soared 21 percent after private-equity firm Sycamore Partners said it’s interested in acquiring the company.
Sycamore, which has amassed a 9.9 percent stake in Express, said in a letter to the retailer’s board that it would like to perform due diligence to determine a takeover price. Though Express responded by adopting a poison-pill defense, Sycamore’s interest sent the shares to $16.45 at the close of trading in New York, the biggest gain since January 2013. The stock had closed at $13.55 yesterday before the letter was disclosed, giving the Columbus, Ohio-based company a market value of $1.14 billion.
“Given the strategic and operational challenges faced by specialty retailers generally and the company in particular, a fully financed, binding, all-cash offer to acquire the company would be a valuable alternative for the company’s board of directors and stockholders to consider,” Stefan Kaluzny, Sycamore’s managing director, said in the letter.
Express rose 20 percent to $16.25 at 10:35 a.m. in New York.
The retailer could sell for $20.50 to $24.50 a share, Richard Jaffe, a New York-based analyst at Stifel Nicolaus, wrote in a note to clients today.
“The Sycamore buyout of Express has a better than 50 percent chance of being completed; however, we believe the transaction will be prolonged,” Jaffe wrote.
Sycamore, which was started in 2011 by two executives from buyout firm Golden Gate Capital Corp., has been looking for opportunities in a retail economy battered by shaky consumer confidence and declining mall traffic. It previously acquired a stake in Aeropostale Inc. (ARO) and extended a $150 million loan to the teen retailer.
Sycamore also purchased Hot Topic Inc. for about $533.5 million last year and was in talks to buy Billabong International Ltd. before discussions broke off. The New York-based firm, which oversees more than $3.5 billion in capital, purchased Talbots Inc. in 2012.
With Express, Sycamore would be making a bigger gamble. The retailer’s market value is more than twice as high as the Hot Topic price, and its sales and profit have fallen for two straight quarters. Express, which was previously owned by L Brands Inc. (LB), went public in 2010. L Brands sold 75 percent of its stake to Golden Gate in 2007.
Kaluzny, who left Golden Gate to help found Sycamore, played a principal role in the acquisition from L Brands, giving Sycamore intimate knowledge of Express, Neely Tamminga, a Minneapolis-based analyst at Piper Jaffray, wrote in a note today.
In the letter, Kaluzny called for cooperation from Express’s board. He said Sycamore plans to submit a bid within 30 days of getting access to Express’s books.
Less than two hours after Sycamore disclosed its letter, Express posted a response saying it was adopting an anti-takeover plan. The poison pill hinders shareholders from acquiring a stake of 10 percent or more without the board’s consent, though it doesn’t prevent the company from considering or accepting an offer, Express said. It also formed a special board committee to weigh its options.
Express Chief Executive Officer Michael Weiss has been trying to boost results by clearing out unsold inventory and relying more on factory stores. Still, analysts expect sales and earnings to continue sliding for at least two more quarters.
The retailer cut its annual profit forecast last month to as much as 90 cents a share, down from a previous range of as much as $1.23. The chain is contending with deep discounts across the retail industry and fewer shoppers at U.S. malls, where Express does much of its business. The company said in May that it plans to close 50 stores over the next three years, out of more than 600 retail and factory-outlet locations.
The sluggish sales have weighed on the stock. Shares of the retailer declined 27 percent this year through the close of trading yesterday.
In its response to Sycamore’s approach, Express said yesterday that it hired Perella Weinberg Partners LP and Sullivan & Cromwell LLP to advise the company and its new special committee.
Earlier this week, Sycamore announced it had acquired the Coldwater Creek brand and other intellectual property as part of that retailer’s Chapter 11 proceedings.
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