In a sudden turnaround Sycamore Partners has made another bid to buy Talbots (TLB) after taking a previous offer of $3.05 off the table. Investors were shocked last Friday when the offer was gone, and shares crashed to $1.50. After falling as low as $1.28 yesterday, Sycamore has now made a new lower offer to take the company private, according to a press release from Talbots:
HINGHAM, Mass.--(BUSINESS WIRE)--May. 31, 2012-- The Talbots, Inc. ("Talbots" or the "Company") and Sycamore Partners today announced that they have entered into a definitive agreement pursuant to which an affiliate of Sycamore Partners will acquire all the outstanding common stock of the company for $2.75 per share in cash. The transaction is valued at approximately $369 million, including net debt. The transaction is currently expected to close in the third quarter of this year.
This announcement sent the stock soaring again. This morning it had more than doubled from a low of $1.28 to $2.59 in early morning trading. This is great news for investors who took a chance and bought the stock at record lows yesterday. However many shareholders are not so happy. Consider the ones that invested in the company in the last decade when Talbots had gone as high as $58 a share. By taking the company private these people will never have a chance to recover their huge losses:
One of the most vocal opponents of the original Sycamore offer was Oppenheimer, a majority owner of the company. An analyst with the company said this former offer was too low, and this encouraged other investors to group together threatening to fire the entire Talbots board for even considering $3 when some analysts had a $4 target price for the stock:
San Diego, Dec. 6, 2011 (Shareholders Foundation) -- The proposal to take over The Talbots, Inc. at $3.00 per share by Sycamore Partners caused an investigation on behalf of investors of The Talbots, Inc. concerning whether a potential takeover would be unfair for TLB stockholders and whether certain Talbots directors breach their fiduciary duties in the event of an acquisition.
Sycamore agreed that they might offer more than $3 a share, if they were allowed to see Talbots' books. On January 27, 2012, Talbots agreed to this, and filed a 13D with the SEC effectively allowing Sycamore Properties to view its confidential financial information. It also contained "standstill provisions" which would 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.
This action resulted in a new bid of $3.05 which the Talbots board was reluctant to approve due to the fear of legal action:
HINGHAM, Mass.--(BUSINESS WIRE)--May. 15, 2012-- The Talbots, Inc. today announced that, based on ongoing discussions during the last week, the Company and Sycamore Partners have agreed to extend the exclusivity period under the exclusivity agreement entered into on May 5, 2012, in connection with Sycamore Partners' non-binding proposal to acquire all of the Company's outstanding common stock for $3.05 per share. The exclusivity period will now expire on May 22, 2012.
The continuing delays from the Talbots' board caused Sycamore to remove the bid last week. And yet now they have made a lower bid which the board has accepted wholeheartedly. I have heard from several investors this morning that are completely perplexed. Why would Talbots reject $3.05, and then accept $2.75 one week later? The reason for the rejection originally was the fear of a class action suit:
Because Talbots is public, its board was petrified by the prospect of another round of lawsuits, alleging breach of fiduciary duties in connection with its conduct related to the proposed sale of the company.
Did they think by lowering the bid it would stop the threat of the suits? This has angered investors even further and the lawyers are already lining up. Just announced this morning before the ink has dried:
Levi & Korsinsky is investigating the Board of Directors of The Talbots, Inc. ("Talbots" or the "Company") for possible breaches of fiduciary duty and other violations of state law in connection with the sale of the Company to Sycamore Partners.The investigation concerns whether the Talbots Board of Directors breached their fiduciary duties to Talbots stockholders by accepting an offer below Sycamore's original bid. In December 2011 Sycamore offered $3.00 per share, but Talbots rejected the offer as being "inadequate and substantially" undervaluing the company. Talbots stock has traded as high as $3.36 per share as recently as March 22, 2012.
One valuable idea that came from some of the investors would be for Talbots to get rid of its "poison pill." When Sycamore began investing in Talbots last summer, the board voted to adopt an agreement which would not allow anyone (it was aimed at Sycamore) to buy 10% or more of the company. If this was removed it would allow Sycamore to take control of the company through bids or the open market. Then investors intent on remaining with the company could do so at their own risk.
At the moment it looks like the stock is a buy up to $2.75, but according to Talbots' own press release, it is still not a done deal. And then there are the class action suits which might delay the closing. As I have said in many of my recent articles, this stock is for gamblers right now. Nothing has happened to change my mind about that. But you can gamble and win. Just ask anyone that bought Talbots yesterday and then sold it today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.