Off-price women's apparel retailer Dress Barn Inc is acquiring teen fashion retailer Tween Brands Inc in a stock-swap deal worth around $157m, it emerged today (25 June).

As part of the transaction, Dress Barn is also paying off Tween Brands' outstanding bank debt.

The deal is expected to close in the fourth quarter of this year, and will see Tween Brands - which targets 7 to 14-year-old girls through its 908-store Justice chain - become a separate subsidiary of Dress Barn.

Its management team, led by current chairman and CEO Mike Rayden, will continue to run the unit, with Rayden reporting directly to Dress Barn president and CEO David Jaffe.

The combined company will have net sales of around $2.4bn and operate 2,465 stores.

For Dress Barn, which sells career and casual fashion apparel through its 841 Dressbarn and 716 Maurices stores, the agreement provides an opportunity to "diversify and complement" its existing business in the $12bn tween girls apparel market.

"We believe that Justice is a highly attractive business that has come under significant pressure as a result of the tight credit market and the challenging consumer environment," Jaffe notes.

In particular, the repayment of Tween Brands' bank debt immediately alleviates the financial pressures on the Justice business.

"I believe that our combined company will be formidable and have significant competitive advantages in this increasingly challenging market environment," Rayden added.

The timing of the deal comes as New Albany, Ohio based Tween Brands has nearly finished converting its Limited Too stores to the lower-priced Justice nameplate.

The change was announced last August in response to slumping sales and was designed to appeal to customers trading down to lower-priced goods.

However, despite hopes of increased sales momentum as a result of the changes, the company saw full-year sales drop 2% to $995.1m, with same-store sales falling 12%. Justice sales for the year were up 32% to $318.7m, but comps were flat.

Meanwhile, a restructuring charge of $19m pushed the retailer to a full-year loss of $17.1m, from a profit of $52.6m a year earlier.

Last month, the company swung to a first quarter loss of $1.4m as teen girls stayed away from its stores and same-store sales tumbled 23%.

Dress Barn, meanwhile, hopes to replicate the integration of the Maurices chain, which it bought for $320m at the end of 2004.

"The management at both companies believes there is an excellent opportunity over the next several years to grow the operating margin for the Justice business to a level at least consistent with that generated by Dress Barn Inc's existing consolidated operations," Jaffe said.

As well as boosting sales and profitability by implementing best practices across the entire organisation, they hope to generate cost savings through economies of scale in areas such as sourcing and real estate.