Shares for youth apparel retailer rue21 Inc. (RUE) shot up nearly 23 percent on Thursday to an all-time high to close at of $41.96 on reports that the company’s board approved an almost $1 billion with the firm Apax Partners to go private.
Rue21 has a market cap of $996.65 million. With some 23.71 million shares outstanding, the Apax offer of $42 per share represents a 23 percent premium on rue21’s Wednesday closing price of $34.12.
While investor enthusiasm for the buyout was evident in Thursday’s huge jump in share-price, the way forward for Apax and rue21 is by no means free of obstacles. The deal could be finalized by the end of the year, but it still needs approval from the majority of rue21 shareholders who are not part of the SKM II fund that owns some 30 percent of the company.
Also, the very same day, Los Angeles-based investment law firm Glancy Bunkow & Goldberg LLP announced that it was investigating allegations that rue21’s Board of Directors was remiss in its duty to the company’s shareholders by not sufficiently shopping itself before reaching the advanced stages of its deal with Apax. The apparel company has 40 days to solicit competing bids, and would have to pay a $10 million penalty to Apax should it decide on a different deal.
The law firm will also be looking in to whether or not rue21 made the requisite disclosures of information about the deal to its shareholders.
Rue21 reports earnings for the first quarter during the first week of June, but says that it expects that it made $0.44 per share, short of analysts’ expectations of $0.48 per share, despite its forecasting of a 9 percent increase in net sales.
Should the deal go through, it would be one more in a recent trend of private equity firms purchasing clothing retailers and manufacturers. Earlier in the year, the famous teen gothic-themed apparel store Hot Topic (HOTT) was purchased by Sycamore Partners for $600 million, while two weeks ago popular jean bran True Religion (TRLG) was bought out for $835 million by TowerBrook Capital Partners.
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