On January 27, 2012 The Talbots, Inc. (TLB) filed a 13D with the SEC effectively allowing Sycamore Properties to view their confidential financial information. It also contains "standstill provisions" which prevent Sycamore from taking any actions toward Talbots without the permission of the Talbots Board:
In connection with the consideration of a possible business combination transaction with respect to the Issuer, effective as of January 27, 2012, Sycamore Partners Management, L.L.C. ("Sycamore") entered into a Confidentiality Agreement with the Issuer, pursuant to which the Issuer will make available to Sycamore and its representatives, certain confidential information regarding the business, operations, strategy and prospects of the Issuer (the "Confidential Information"). The Confidentiality Agreement contains, among other things, standstill provisions that prohibit Sycamore from taking certain actions without the prior written consent of the Issuer or its Board of Directors, during the period (the "Standstill Period) beginning on January 27, 2012 and ending on the earlier of (i) January 27, 2013
On December 7, 2012 I wrote an article, Talbots Stock Soars on Takeover News, explaining the overnight jump in the stock price from $1.56 to $2.75. At the time Sycamore was offering $3 a share in an unwelcome private buyout of the company. Talbots rejected the offer as too low and began to seek out other higher offers:
Talbots' advisor -- Perella Weinberg -- has started actively soliciting bids for the company, and Golden Gate Capital, which is active in the retail sector, is considering a bid, a source familiar with the matter told Reuters.
Golden Gate and TPG Capital are among the firms weighing bids for Talbots, CNBC reported earlier in the day.
When word that two companies might be bidding against each other leaked out on January 20, the stock began another climb upward. Eventually it went to almost $3.50 per share. Talbots closed on Friday at $3.30:
Talbots vs S&P:
When the stock hit an all time low of $1.46 it was 70% lower than the S&P. And a lot of people felt this was the end for the company. They began a search for a new CEO to replace Trudy Sullivan who many felt had helped to drive the company into the ground. At that time I wrote an article, Betting On Talbots Vegas Style. I felt that there were a lot of people who had invested in the stock (many at much higher prices) and they were holding, waiting for their pay off.
Then when Sycamore put the $3 offer on the table, this effectively doubled the stock's value in a matter of days. However, many investors felt this offer was way too low especially considering that Sycamore would take the company private, making it impossible for stockholders to remain owners and eventually regain some of their losses. However, there is another investor involved now. That is the one that took that Vegas long shot and bought when the stock was between $1.46 and $3.
Now comes the big question, "what to do?" Should you buy, sell, or hold? Obviously, if I had a crystal ball and knew for sure, I would be rich. Since I don't, I can only look at Talbots' past performance and deduct the most likely outcome for the future.
First, they have been losing massive amounts of money. Not enough to go bankrupt, but a lot. For Q3 the loss was 22 cents per share, much worse than the analysts' predictions of a 16 cent loss. To help cut some of these losses the company implemented a plan to save $50 million a year on expenses. However, they have had to drastically mark down their winter inventory to move it. This will negatively impact the gross margin (GM) that they so desperately need. According to Janney Capital Markets via Barron's Soapbox:
End-of-season clearance inventory continues to remain the highest we have seen in the Missy sector. This weekend Talbots ran an additional 60% off all markdowns for total savings up to 80% off. Even though the stores continue to be highly promotional, we believe this is in line with the company's guidance for fourth-quarter 2011, which included very aggressive promotional activity to clear inventory.
The next issue is the lack of a president. This could make or break what happens to the company next. New blood in a dying situation can pump in much needed new life. Talbots could take off in a whole new direction adding positive morale for employees and investors. However, this has not happened yet. Are they delaying action until they get a buyout offer? The new company would probably want to pick their own president.
As far as future buyouts, this situation is looking pretty bleak. We must assume that Talbots has allowed Sycamore to look at the books because the other companies are not that interested. Sycamore did offer to sweeten the $3 a share deal if they could see the books. However, they must see potential earnings in those financial records to make a higher offer. If Sycamore is their only bidder, they will be more likely to offer a lower price.
This is a very old respected company with a lot of people pulling for it just because of that. But there are a lot of negatives which outweigh the positives. On the one hand there is always the chance that they will find a new dynamic CEO, bring in the most darling clothes ever seen, and send the price of the stock soaring to new heights. The economy is rebounding and that will have a positive effect on all of retail. But this is a long shot.
There is also the chance that the private equity companies could begin a bidding war sending the stock soaring. Again, although possible, this is another long shot. The most likely scenario is that Talbots will continue business as usual, which will lead to a Sycamore buyout of between $3.50 and $4.00 a share. What to do now depends on your tolerance level for risk and loss. If you aren't tolerant and you own Talbots stock, I would say get out now. But if you are a gambler, there is a chance the stock will pay off for you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
