Shares of Express, Inc. have climbed 22% in after-hours trading after the company revealed that investment firm Sycamore Partners is interested in taking it over
Clothing retailer Express, Inc. (EXPR) confirmed yesterday that it has received a letter from investment firm Sycamore Partners intimating the latter’s interest in acquiring it. Sycamore had revealed on Thursday that it has purchased a 9.9% stake in the fashion retailer. Express’s stock price surged 22% in extended trading yesterday following the confirmation.
New York City-based Sycamore Partners, which specializes in retail investments, had sent a letter to Express’s board saying it intends to return with a definitive cash deal after completing due diligence within 30 days of getting access to the company’s books. The private equity firm had announced earlier this week that it has also taken over women’s clothing and accessories retailer Coldwater Creek’s intellectual property after the 30-year-old company filed for bankruptcy in April.
Express said it has put together a special committee to guide the company in evaluating possible options. Perella Weinberg Partners LP and Sullivan & Cromwell LLP have been hired as advisors. The struggling apparel retailer also declared that it has adopted a poison pill, a popular anti-takeover attempt, to protect shareholders’ rights in case of a hostile takeover bid by a suitor.
Under the poison pill adopted by the company, it will issue additional shares to dilute voting rights if any party acquires a stake of 10% or more without the Board’s approval. This, however, will not hinder progress with Sycamore in case the Board feels the deal it is offered is fair and beneficial for its shareholders.
Sycamore Partners, founded by ex-Golden Gate partners Stefan Kaluzny and Peter Morrow, has a history of acquiring struggling brands and companies in which it sees value, and turning them around. The private equity firm split The Jones Group’s four brands into independent companies after acquiring the company for $2.2 billion in April. It also purchased pop-culture apparel retailer Hot Topics for $600 million in March last year. Talbots, an upscale retailer of women’s apparel, is also in Sycamore’s portfolio.
In the past year, Express’s share price has slid over 37% to $13.50 apiece, as of yesterday’s close, following a fall in sales and profits amid aggressive promotions. Due to intense competition in the retail industry and lackluster demand for its products, the company has seen revenues decline 9.4% and adjusted earnings per share (EPS) fall 84% in the first quarter of its 2014 fiscal year. The management has since lowered its full-year outlook for profits, and anticipates that Express might even post a loss in the second quarter due to weak sales and a buildup of inventory.
The Street expects the company’s EPS to be one cent in the ongoing quarter, which marks a 97% decline from the comparable period last year.
The distressed company, which operates over 600 stores in the US, has announced it will close 50 underperforming stores within three years in an attempt to save $5-8 million in annual costs.
Sycamore founders Kaluzny and Morrow are well aware of Express’s troubles, as they were in the team that managed the company under Golden Gate. Their prior experience with the company makes a buyout deal seem likely. Prior to 2007, Express was part of intimate apparel retailer L Brands, Inc. (LB), formerly called Limited Brands. After its spinoff, Golden Gate had taken the company private, only to offer it back to the public within three years.
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