Retail chain The Talbots, Inc. (TLB) saw shares bounce today on news that private equity firm Sycamore Partners was making an offer to purchase the company, offering a 92 percent premium from yesterday’s close. Meanwhile shares in Martha Stewart Living Omnimedia, Inc. (MSO) also took a leap after news that J.C. Penney Company, Inc. (JCP) would be buying a stake in the company as part of a new partnership.
Sycamore Partners Defends Investment
Sycamore Partners is already an owner of a 9.9 percent stake in The Talbots, a stock that had lost over 80 percent of its value year-to-date prior to the announcement of the purchase offer. Talbots, a Hingham, MA-based women’s apparel maker and retailer, had seen sales and earnings slump in 2011. In late October, Talbots reported a loss of over $20 million on the most recent quarter, exceeding analyst expectations and prompting President and Chief Executive Trudy F. Sullivan to reassure shareholders by saying “While we are not satisfied with our performance, we believe the modifications we are making to our merchandise assortment are better resonating with our core customer, which is consistent with the results of our most recent consumer research studies.”
The decision by Sycamore Partners to make an offer of $3 a share comes after an announcement earlier this week from Trudy Sullivan that she intends to step down as soon as an adequate replacement CEO can be found. Sycamore Partners stated yesterday that they were dissatisfied with Talbots’ “rapidly deteriorating situation” during the all-important holiday shopping season. Talbots, though, has rebuffed the Sycamore Partners offer. Sycamore has been interested in a takeover of Talbots since the summer, but Talbots manneuvered to prevent a possible hostile takeover by adopting a “poison pill” strategy that would offer discounted new shares automatically to all other shareholders should any one shareholder ever exceed a 10 percent stake in the company.
Analysts, though, remain skeptical that Talbots will remain capable of blocking the sale in the long term. Adrienne Tennant of Janney Capital Markets said in a client note that Sycamore’s offer was good. “While a full-blown turnaround would likely yield a far higher valuation, there is tremendous uncertainty surrounding such a turn, and a new management team will likely take another 12 months to execute a new strategy and impact the business in any material way,” the analyst wrote. Wedbush’s Betty Chen, meanwhile, changed her rating on Talbots to “neutral” from “underperform” while raising her price target from $1.50 to $3, citing an expectation that the deal will ultimately get done.
JC Penney Plans to Team with Stewart
Elsewhere in retail news, shares in Martha Stewart Living shot up over 30 percent today after news that mega-retailer JC Penney is going to purchase a 16.6 percent stake in the company. The deal will sell Penney shares at $3.50 a share and will result in a special dividend for Martha Stewart Living shareholders of $0.25 per share. Along with the purchase of shares, JC Penney is planning to open a series of Martha Stewart mini-retail shops within JC Penney stores as well as teaming up for a e-commerce website. Both new ventures are expected to launch in 2013.
The Men’s Wearhouse, Inc. (MW) also had a solid day, watching shares soar nearly 20 percent after a better-than-expected quarterly earnings report was released after market close yesterday. GAAP diluted earnings per share were $0.77 for the third quarter, almost a dime higher than many analysts were expecting.
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