UPDATE: US: Sycamore Partners buyout of Express looks likely
Sycamore has bought at 9.9% stake in Express to date
A buy-out of troubled US apparel retailer Express Inc by Sycamore Partners looks likely, analysts believe, after the private equity firm last week acquired a 10% stake and said it wants to craft a formal proposal to acquire the rest of the company.
In a letter to the company's board last week, Sycamore, which has amassed a 9.9% stake in Express, said it wants to perform due diligence on the company to determine a price for the retailer, which could lead to a buy-out.
The investment firm said it paid US$106.2m for its stake.
Express acknowledged receipt of the letter and said it had established a special committee to determine a course of action it believes is in the best interest of all its stockholders. This has included adopting a stockholder rights plan with a 10% trigger in order to provide the board with time to determine a course of action that is in the best interests of its shareholders.
In response to the news, Express shares were up around 20% in pre-market trading.
Stifel analyst Richard Jaffe believes a going private deal is likely. "The Sycamore buyout of Express has a better than 50% chance of being completed; however, we believe the transaction will be prolonged," he says.
"With shares trading at $16.80 pre-market, we think the company is more than fully valued on a fundamental basis."
If the buyout is completed, Jaffe believes shares could price between $20.50 and $24.50.
"If we assume the same transaction value as the J Crew transaction in November 2010, 8.4x TTM EBITDA of $242.4m, this would imply a share price of about $24.50 for Express, implying a 45% premium to the pre-market share price of $16.80.
"However, at the time of the J Crew deal, we viewed J Crew's performance outlook more favourably than Express' outlook today. Given this, we believe there is a possibility that the buyout could get done at a slightly lower multiple closer to 7x TTM EBITDA, implying a share price of approximately $20.50."
Express is a former division of Limited Brands. The company, however, has suffered from declining profits over the past two years with earnings for its most recent fiscal year ending 1 February falling 16% to $116.5m.
Last month, the firm outlined a cost-reduction plan designed to save US$18m per year and close 50 stores, after reporting an 84.3% drop in first-quarter profit.
The private equity firm most recently said it would relaunch troubled women's wear retailer Coldwater Creek as an independent company after acquiring the brand and other intellectual property.
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