Hingham, MA—Just days after reporting a dismal third quarter where the store swung into a wider loss that spurred $50 million in cost-cutting, Talbots is now the target of a takeover bid by private equity firm Sycamore Partners.
According to a regulatory filing made on Tuesday, Sycamore offered to buy the specialty retailer for $3 a share, about double the closing price posted on Tuesday. Excluding the shares Sycamore already holds, the deal would be worth about $212 million, analysts said.
Earlier this year, Talbots’ board of directors adopted a shareholder rights plan or “poison pill” strategy to thwart Sycamore Partners, which took a 9.9% stake in the company.
But with the poor earnings reports—and the announcement on Monday that Talbots is looking to replace Trudy Sullivan, its ceo,–Sycamore said the takeover is a result of its frustration with Talbot’s “rapidly deteriorating situation” in its current fourth quarter, not to mention the retailer’s declining stock prices, which have dropped some 80% this year alone.
“While the company has struggled during the execution of its turnaround plan, recent results have deteriorated at a dramatically faster rate and magnitude,” Stefan Kaluzny, managing director at Sycamore, wrote in a letter to Gary Pfeiffer, Talbots’ chairman. “Nonetheless, we believe that Talbots has significant potential and remains a premier, storied brand.”
Sycamore reportedly has met with Talbots management but claims its “value-enhancing transaction” has been rebuffed. Meanwhile, Sycamore criticized the fact Sullivan’s “retirement” was announced without a replacement being named.
“Other than Sycamore, we believe there are, at best, a very limited number of potential acquirers who have the relevant experience, skills, interest and capital to invest in a struggling apparel company such as Talbots,” Kaluzny wrote.
Meanwhile, attorneys at Brodsky & Smith LLC announced today that they investigating claims on behalf of shareholders that Talbots board of directors could be in “breaches of fiduciary duty and other violations of state law” for “not acting in the company’s shareholders best interests” in dealings with Sycamore’s $3 a share offer.
Talbots Searching for New CEO, too
Sullivan, who came to Talbots in 2007, had been trying to steer a turnaround at the retailer, but with mixed results. Rumors that the company was searching for a new chief executive surfaced again last week.
Sullivan, who reportedly plans to retire when a successor is identified, “but no later than this June.” She reportedly will receive a “golden parachute” exit package consisting of $5 million cash in severance, accelerated vesting of stock options, 24 months of continued vesting of restricted stock, additional bonus money, and continued medical, dental, disability, and life insurance.
She, who started her retail career as a buyer at Jordan Marsh, came to Talbots after being president at Liz Claiborne. Among her first directives for Talbots was to close its men’s and children’s businesses and sell off the J. Jill Chain. But her efforts to expand the Talbots base beyond the over-40 consumer, haven’t been successful and much of that initiative has been withdrawn.
However, the retailer’s woes have continued and after posting a $22 million loss last week, the company announced it would cutting $50 million in costs including laying off about 100 corporate employees, suspending its national print advertising and TV campaigns, reducing store workers’ hours and downsizing inventory. The company also plans to reduce its capital expenditures next year to $30 million from its current spending level of $47 million.
Sullivan’s “successor will inherit from her an extraordinary brand and a strong operating foundation from which Talbots will complete its transformation and sustainably create superior shareholder value,’’ Gary M. Pfieffer, chairman of the Talbots board of directors, said in a statement.
Sullivan’s successor has a big job ahead of him or her, too, analysts said.
“Talbots has lost touch with the customer,’’ Jill Avery, a brand marketing professor at Simmons School of Management told the Boston Globe. “The new leader needs to be someone who is customer-centric and focused on understanding consumers, their behaviors, and then align that with Talbots’ product line, store design, and marketing messages.’’
Talbots’ next leader will need to know how to leverage the company’s heritage and communicate it to the consumer, said Marshal Cohen, chief industry analysts at The NPD Group Inc., a market research firm.
“Talbots was not nimble enough or quick enough to change. The woman who is 40 years old doesn’t dress like she is 40, she dresses like she is 25,’’ Cohen said. “Talbots needs to become a brand, not just a retailer.’’