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TheDeal: Apax Offers to Take Back Rue21 in $1.1B Deal

Stocks in this article: RUE

NEW YORK ( TheStreet) -- rue21 Inc. (RUE), the Pennsylvania-based kids clothing retailer that private equity firm Apax Partners LP took public in 2009, will be bought out by the very same leveraged buyout shop.

Apax announced Thursday the $42 per share, or $1.1 billion, deal, which is more than double the company's stock price from its fall 2009 offering.

There is a 40-day go-shop for the target, and a $10 million termination fee.

At the time Apax brought rue21 to market, it held a majority stake of more than 60%, and did not sell stock at the time of the initial public offering. In early 2010, after the stock had risen more than 50%, the PE firm exited much of its position, reducing its stake to about 29%, which it held through its SKM II funds.

The announcement said the SKM funds were voting their shares in favor of the transaction.

According to a statement Apax made at the time of the secondary share sale, it realized a 7.3 times return on its investment. At that time, rue21 operated 545 stores in 43 states.

When the LBO was announced Thursday, rue21's footprint had expanded to more than 930 locations.

Bob Fisch, rue21's chairman, president and CEO, said he will recuse himself from the deal vote, along with two board directors from Apax.

Apax came to own rue21 by way of its absorbing midmarket LBO firm Saunders Karp & Megrue. When rue21 went public in a $124 million IPO in November 2009, the company priced shares at $19, above the expected range.

Rue21 also issued preliminary results for its first quarter ended April 30. While net sales increased 9.1%, comparable store sales decreased 4.6% year-over-year. Diluted earnings per share is expected to be 44 cents, according to the company.

Fisch blamed unseasonably cool weather, higher payroll taxes and delayed tax refunds on the less than desirable results.

The company's special committee is using financial adviser Perella Weinberg Partners' Gary Barancik and Kirkland & Ellis LLP's David Fox, David Feirstein, Ashley Gregory and Richard Brand and Potter Anderson & Corroon LLP are its legal advisers. Perella Weinberg was represented by legal adviser Weil Gotshal & Manges LLP's M&A partners Michael Aiello and Jackie Cohen.

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