Talbots Is Now A Buyout Reject With A Dubious Future And A Sketchy Past


Photo: screenshot www.talbots.com

Sycamore Partners has decided not to buy The Talbots, Inc.  But even before the private equity firm began negotiating about a possible deal with Talbots months ago, the women’s clothing store was undergoing organizational upheaval and tough for investors to predict.After Sycamore offered to buy Talbots for $3.00 per share on December 6, 2011, the stock price jumped from $1.56 to $2.65 the next day. Talbots nonetheless refused within weeks, explaining that the proposal “substantially” undervalued it.

Sycamore came back with a $3.05 per share offer early this month, only to later walk away from the negotiations according to a Talbots announcement on Friday May 25. The retailer added that it remains open to pursuing a deal at $3.05 per share if supported by firm debt and equity financing. Now the stock is trading at $1.35 per share intraday on Tuesday May 29. The company plans to hold a conference call on its earnings after the market close.

Talbots is struggling as it tries to recast itself as a place for women over 35, despite its legacy of serving an older, conservative crowd with items such as brass buttoned blazers, cabled sweaters and spectator pumps.  Meanwhile, it announced a plan in December to let go of 9% of its corporate headcount, or around 100 people, according to news reports. The company also said in a December regulatory filing that it will shut down around 110 stores.

That overhaul followed other game-changing deals such as Talbots’ merger completed in April 2010 with BPW Acquisition Corp., a company formed in 2008 for the purpose of doing transactions including business reorganizations. The complex agreement included the buyback of shares from Talbots’ former majority stockholder, Aeon (U.S.A.), Inc. and restructuring hundreds of millions in debt.

Lawyers have raised doubts about the quality of the company’s reporting. Investors filed a class action lawsuit against Talbots in February 2011 alleging things such as the company’s knowing that its forecasts were “illusory and unattainable.” For example, Talbots had said its fourth quarter sales would range between flat and the low-single digits, but then ended up reporting in January 2011 that they were down around 7% compared to the fourth quarter of the prior year, the plaintiffs alleged.

In part due to such developments, the company’s financial statements have reflected an AGR of 13 since December, indicating higher accounting and governance risk than 87% of companies. In September 2011 the score was a 21. The low AGR doesn’t mean that Talbots necessarily did anything wrong — GMI gives the company a C on its corporate governance overall – but it does show that Talbots’ financial statements have grown less reliable as its future became tougher to predict.

In the meantime, Talbot is actively exploring its options for a new strategy. Hopefully the next one won’t complicate the retailer’s finances.

Talbots did not immediately respond to a request for comment.


Region:  North America
Industry: Cyclical Consumer Goods / Services
Sector:   Retail – Apparel / Accessories
Market Cap: $ 178.0mm (Micro Cap)

ESG Rating:  C
AGR:   Aggressive (13)

Read more posts on GMI Ratings »

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