Teen apparel and accessory retailer rue21, Inc. (RUE) said Thursday that it has entered into a definitive agreement to be acquired by private equity firm Apax Partners for approximately $1.1 billion in cash. Meanwhile, rue21 released worse-than-expected first quarter results.
Per the agreement, funds advising New York-based Apax will buy all the outstanding shares of rue21 for $42.00 per share, representing a 23-percent premium to Wednesday’s closing price and 42-percent premium to the 90-day volume weighted average price of shares of RUE.
The deal also allots rue21’s Special Committee and advisors 40 days to “go-shop” itself for better offers. Should a better offer be found, Apax is due a 1 percent (about $11 million) termination fee.
The rue21 board has approved the agreement. SKM II funds, which hold about 30 percent of RUE shares, have also agreed to support the transaction. SKM II funds have been associated with Apax for eight years. The stake in rue21 is their only investment.
“This transaction will allow us to focus on achieving our long-term objectives, including growing our business to over 1,700 stores in the U.S. and successfully implementing new initiatives such as e-commerce and rueMan,” said Bob Fisch, chairman, president and chief executive of rue21.
When Apax first invested in Warrendale, Pennsylvania-based rue21 in 1998, there were less than 100 retail locations. The company now operates 932 stores across 47 states. rue21 went public in 2009.
Pending approvals, the deal is expected to be closed by the end of 2013.
rue21 reported preliminary earnings and same-store-sales as part of the acquisition announcement. The company said net sales for the quarter ended April 30 increased 9.1 percent, although comparable store sales dropped 4.6 percent compared to last year’s first quarter. The company expects profits for the quarter of 44 cents per share. The official report is slated for June 5 after the closing bell.
Wall Street was expecting earnings per share of 48 cents and about a 14 percent rise in sales.
Fisch said the the company faced the same challenges as others in the industry of unseasonably cool spring weather, higher payroll taxes and delayed tax refunds that crimped sales growth.
The transaction is the latest in a series of private equity firms using some of the cash hoards to grab companies in the retail apparel markets. In March, Sycamore Partners agreed to pay $600 million for Hot Topic Inc. (HOTT). Earlier this month, TowerBrook Capital said it would spend $835 million for denim manufacturer True Religion Apparel Inc. (TRLG).
Shares of RUE, which were up by about 21 percent so far in 2013, surged ahead to the buyout price at Thursday’s opening bell and have remained in the area one hour into the trading day (where they are likely to stay going forward).