Talbots Stock Soars On Takeover News

| About: The Talbots, (TLB)

Talbots Inc (NYSE:TLB) has said in a press release that it has received an unsolicited offer from a New York private equity firm to buy the ailing retailer for $3 a share, and that it is considering the offer. The stock, which closed Tuesday at $1.56 a share, shot up over 70% in after-hours trading. It went as high as $2.75 in pre-market trading Wednesday.

HINGHAM, Mass. --(BUSINESS WIRE)-- The Talbots, Inc. today announced that its Board of Directors has received an unsolicited letter, dated December 6, 2011, from Sycamore Partners outlining a non-binding proposal to acquire all of the Company’s outstanding common stock for $3.00 per share. The Board, in consultation with its external legal and financial advisors, Dewey & LeBoeuf LLP and Perella Weinberg Partners, intends to evaluate the proposal consistent with its fiduciary duties to act in the best interest of the Company’s stockholders.

According to Sycamore Partners, Talbots originally rebuffed the offer, so Sycamore decided to take its case public, to let investors know of the offer in an amended 13D filed with the SEC Tuesday. Sycamore feels that the company has so many problems that it would do better as a private entity. Sycamore is willing to buy all of the remaining common stock (that it does not already own) at $3 a share, and there are reports that it is willing to pay a higher price if Talbots will give Sycamore access to the current financial records. Sycamore currently controls 9.9% of the company.

All of this comes one day after Talbots confirmed that it was forcing CEO and President Trudy Sullivan into retirement. The fact that the company has not announced a new president during such a critical time has Sycamore worried. Reuters reported:

"As one of Talbots' largest shareholders, we are concerned by the company's rapidly deteriorating performance. We believe we are not alone in our concerns about the company's current condition and future direction," Sycamore said in a letter to Talbots.

Sycamore, which specializes in retail and consumer investments, said it met Talbots' chief executive and chief financial officers several weeks ago, but since then Talbots has rebuffed efforts to hold meaningful talks regarding a transaction.

"Now that Sycamore has made a move, there might be other bidders coming in, but Sycamore seems to have a strong interest and appetite for taking on the turnaround of Talbots," said Margaret Whitfield of Sterne Agee & Leach. "Talbots is a very old brand which I think has appealed especially to affluent baby boomers. I think it is a situation that can be improved upon."

In my article "What Happened to Talbots?" I mentioned that Sycamore tried to buy Talbots this past summer, but was met with opposition from the Talbots board when the board passed a type of poison pill that prohibited anyone from owning more than 10% of the company. At that time, the stock was hovering near $4.00 a share.

What will the Talbots board do this time? Will the shareholders demand that they seriously consider this proposal by Sycamore? And what is really better for investors? A lot of stockholders will feel relieved if Talbots does take the offer, doubling the worth of their current investment. But what about the people that paid $15 or more a share, with no hope of redeeming their money if the company goes private?

Peter Lattman describes the equity firm this way:

Sycamore, a new firm focused on retail and consumer companies, was started this year by Mr. Kaluzny, a former partner at the private equity firm Golden Gate Capital. Mr. Kaluzny is a well-known retail investor; before forming Sycamore, he played a lead role in Golden Gate’s acquisition of the jewelry chain Zales.

My article "Betting On Talbots Vegas-Style" discusses some of the options investors have with this stock. Now stockholders would be prudent to stay informed as to the outcome of this offer. If Talbots were to react negatively and install a poison pill, the stock would become diluted. However, I really don't see it doing this right now. So the big question is whether to buy more stock right now, while the price is under $3, betting that Talbots will either accept the offer, or make a higher counter-offer. Or should you sell and be done with it?

Fox News is reporting that analysts are changing their target prices from $2 a share to $3.

Another article that I wrote, "Talbots Earnings Send Shockwaves Throughout the Investment Community," discusses the conference call that led to the recent plunge in the stock price, and thus the concerns felt by Sycamore Partners. It also offers some insight concerning store closings, layoffs, the assortment for holidays, and the "new" Talbots customer.

Disclosure: I am long TLB, but may change that position at any time based on these current developments.