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Michaels Prices Stock Offering at Low-End of Expectations

This story has been updated from 2:51 pm ET to include Michaels IPO pricing.

NEW YORK (TheStreet) -- Michaels, the arts and crafts specialty retailer that was taken private in 2006, priced 27.8 million shares at $17 a share on Thursday evening, raising $472 million, according to a press release. The price, which was at the low-end of the range given in the company's regulatory filing, values the company at roughly $3.45 billion.

Michaels is slated to begin trading Friday on Nasdaq under the ticker "MIK." 

The Irving, Texas-based company, with 1,263 stores between its two brands (Michaels and Aaron Brothers) had said that it planned to sell shares between $17 and $19, according to a Securities and Exchange Commission filingJPMorgan Chase (JPM), Goldman Sachs (GS), Barclays (BCS) and Deutsche Bank (DB) are lead underwriters on the deal.

Sources said earlier in the day that investors weren't scrambling to get in on the deal, likely due to company's debt load.

"My channel checks, are currently revealing, that Michael's will 'likely' price at the bottom end or slightly below the $17.00-$19.00 prevailing range. Investors are very concerned at the huge amount of indebtedness that the company has on its balance sheet," Scott Sweet, senior managing partner of IPO Boutique, wrote in an email to TheStreet earlier this afternoon. "However, Michaels has made some good turnaround moves causing improvement in both [year-over-year] revenue and the profit picture. Demand is lukewarm, and I do not expect 'fireworks' initially from this IPO debut."

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"Investors are very price sensitive about highly leveraged IPOs unless they are showing very high growth," Kathleen Smith, principal of Renaissance Capital, an IPO ETF manager, said in an email on Thursday. "We just saw the IPO of ServiceMaster (SERV), a 2007 LBO by CDR, face some price pressure. They priced the IPO at $17 last night, below the original $18-21 range, which seemed to be the formula for a successful launch. The ServiceMaster IPO is up 4.4% so far in trading. Michaels may take a similar path in pricing conservatively. Also, Michaels' peer group of big box retailers has been weak and includes Bed Bath & Beyond (BBBY) which reported poor results. The reason to like Michaels - it has higher profit margins than most of its peers because of its many private label products."

Michael's is facing intense competition from mass-market retailers such as Walmart (WMT), Target (TGT) and Amazon (AMZN), as well as smaller chains Hobby Lobby Stores, Jo-Ann Stores and AC Moore. However the trend toward do-it-yourself crafting projects both for personal and for sale has reached ardent fervor thanks to social media sites like Pinterest, marketplace sites like Etsy and the growing online crafting educational platform, Craftsy.

"Over the last 12 months, we have had approximately 188 million visits to; we also have approximately 1.8 million Facebook (FB) followers, more than 395,000 Pinterest followers and over 134,000 Twitter (TWTR) followers," according to the filing. "We expect our new e-commerce platform will allow us to sell much of our current assortment while also expanding into e-commerce-only products. Although we expect this channel will produce a more limited sales penetration than more commoditized retail categories, we believe it will augment our multi-channel strategy to broaden our customer base and improve the shopping experience."

In 2006, the company was taken private by Bain Capital and Blackstone Group in a transaction valued at about $6 billion. Michaels does not plan on paying any cash dividends in the near future and will instead use earnings to repay part of its $3.7 billion in debt and reinvest in the company. The company said in the filing that it plans to open as many as 45 new stores, which includes 10 to 15 relocations. Earlier this year it launched its e-commerce platform.

Michaels said in the filing that sales in fiscal 2013 reached $4.6 billion. For the first quarter this year, net sales rose 5.9% to $1.05 billion. Quarterly comparable store sales increased 3.8% over the first quarter of last year.

-- Written by Laurie Kulikowski in New York

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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