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The Deal: Sycamore to Pursue Aeropostale Just Like Talbots

NEW YORK ( TheStreet) - Private equity firm Sycamore Partners LLC will use the same strategy in targeting teen apparel retailer Aeropostale (ARO - Get Report) as it did in acquiring women's apparel retailer Talbots (TLB).

The private equity firm revealed in a regulatory filing Sept. 17, that it had taken a nearly 8% activist stake in New York-based Aeropostale, picking up 6.25 million shares for $54 million.

But unlike activist investors, who would push for changes at the company, Sycamore is ultimately looking to buy, someone close to the situation said. Over the past several years, Aeropostale has been pegged as a private equity takeover target by analysts and in news reports. And its latest financials make a Talbots-like scenario even more likely.

For its fiscal second quarter, the teen retailer reported sales dropped 6% to $454 million, compared to a similar period a year ago, while comparable sales including e-commerce were down a whopping 15%, year-over-year. The company reported a net loss of nearly $34 million. Its stock dropped 20.2% from a close of $10.98 on Aug. 22 -- the day of the earnings announcement -- to a close of $8.76 the following day.

After Sycamore disclosed its stake, the stock went back up to close at $10.17 on Sept. 17. This all brings back a memory of Sycamore's campaign to buy Talbots. Initially, the private equity firm, led by Golden Gate Capital veteran Stefan Kaluzny piled up a 9.9% stake in Talbots in August 2011.

Then in December of that year, Sycamore came forward with an unsolicited $3 per share bid, later sweetened to $3.05. But then, Sycamore withdrew its bid altogether, without giving a reason.

Turns out, that was the right strategy, as Talbots' first quarter earnings released on May 25, 2012, were dismal. The retailer reported net sales dropped to $275.9 million for the first quarter ended April 28, from $301.3 million for a similar period the year prior.

That gave Sycamore the bargaining power it needed to bag Hingham, Mass.-based Talbots for a reduced $2.75 per share, valuing the chain at about $369 million, including the assumption of debt. Sycamore, it turned out, was the only bidder for the company.

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