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Sycamore Offers $3.50 a Share for Chico’s FAS in Deal Valued at $407.8M

Private equity firm Sycamore Partners disclosed it has offered to acquire Chico’s FAS Inc. in a deal valued at $407.8 million, or $3.50 a share, following initial attempts to start a conversation that were rebuffed by the women’s specialty chain.

But the latest offer was noted by Chico’s to be lower than a previous offer of $4.30 a share by Sycamore, which Chico’s said had been rejected. The retailer said that proposal was carefully evaluated by its board, which determined that the offer “substantially undervalued” the company.

Chicos’ said that, consistent with its fiduciary duties, the board “will carefully review the proposal to determine the course of action that it believes is in the best interests of Chico’s FAS shareholders.”

Susan Anderson, equity analyst at B. Riley FBR, has a “Buy” rating on shares of Chico’s. The current share price is in the $3.70 range, giving Chico’s a market capitalization of $431 million. Anderson has a price target of $7.00 a share.

The analyst said, “We believe Sycamore’s $3.50 a share offer would be pricing [the] Chico’s assets at a discount. While [earnings per share] are currently depressed, we believe there is significant opportunity to drive EPS power with improved product and a rationalized store base. We view Sycamore’s interest in Chico’s as a positive, as there has been little PE interest in specialty retail for several years now given the demise of the mall, and Sycamore’s interest shows there is value in [Chico’s] and retailers with strong brands.”

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In a regulatory filing with the Securities and Exchange Commission on Friday, Sycamore sent a letter to Chico’s that was dated May 10, 2019. Included in the filing was a statement that Sycamore is one of the company’s largest shareholders, investing $33.4 million to acquire a 6.6 percent stake in the retailer.

The letter was sent by Sycamore’s managing director Stefan Kaluzny to David Walker, Chico’s chairman.

In the letter, Kaluzny wrote: “We have expressed an interest in acquiring the company, but you have declined to engage with us. The recent decision to terminate the CEO suggests that there are serious issues in the business. We believe that the company’s financial performance will continue to deteriorate absent meaningful changes.”

Kaluzny also described the $3.50 per share cash offer as a “significant premium” to what he said the stock price should be: $3.00 a share. However, the takeover speculation surrounding an abrupt announcement of a major management change and the private equity firm’s recent stock purchases are driving up the cash offer.

Chico’s announced the resignation of Shelley Broader, former chief executive officer, on April 24. Board member Bonnie Brooks is currently interim CEO.

In the Sycamore letter, the private equity firm indicated that no third-party financing would be required and that it could complete its due diligence within 30 days. “We believe that engaging with us so we can perform our due diligence has the benefit of creating alternatives for the company’s stockholders. Given the rate and severity of the deterioration of the company’s business, we believe that it is in the best interests of all stockholders for the board to create those options,” Kaluzny wrote.

Chico’s, which plans to shut 250 stores, has more than 1,400 stores in operation. It operates under the nameplates Chico’s, White House Black Market and intimates brand Soma. Sycamore, which has about $10 billion of capital under management, has in its portfolio ownership of the women’s retail brands Talbots and Coldwater Creek. It also owns the Belk department store operation.