This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ann Taylor Gets Push From Activists to Sell

NEW YORK ( The Deal) -- Ann (ANN)  is the latest retailer to come under the pressure of activists asking the company to explore a sale.

On Monday morning hedge funds Engine Capital LLP and Red Alder LLC said they sent a letter to the board of directors expressing disappointment that discussions with management had not led the company to explore a sale.

In response, the New York-based parent of the Ann Taylor women's apparel store chains said in a statement it "welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value. Our board and management team are committed to creating value for all Ann Inc. shareholders, and we will continue to take actions to accomplish this goal and position the company for growth and success."

Red Alder and Engine Capital collectively own more than 1% of Ann's outstanding shares, they said.

The activists' main argument is that the company is undervalued, which prompted the firms' investment; they noted that the retailer trades at 5.5 times Ebitda.

Ann, the hedge funds, said, had a list of attributes that would be attractive to private equity, such as consistent performance, ability to improve margins, significant free cash flow, high brand recognition and size. As a result, current credit markets would likely allow PE firms to borrow around 5 times Ebitda at attractive rates.

The letter said a number of leveraged buyouts over the last few years have valued specialty apparel retailers on average between 8 times and 9 times Ebitda.

Red Alder and Engine Capital claimed that Ann could be worth between $50 to $55 per share to a private equity acquirer - a 40% premium to the current stock price.

Ann closed at $37.52 per share on Friday, and was up on Monday by about 3.8% in morning trading to $38.95 per share on the news, giving it a market cap of roughly $1.8 billion.

The two hedge funds also noted in the letter that PE firm Golden Gate Capital had recently become the company's largest shareholder. That, according to the investors, was one of many factors adding to their push for the retailer to explore sale possibilities.

The two shareholders said they would begin to talk to potential buyers and encouraged PE firms to indicate their interest in an LBO.

Alternatively, a leveraged recap of the retailer would also be attractive to shareholders, though not as lucrative as a sale. The activists' letter said Ann could easily borrow $600 million, approximately 2 times Ebitda, for about $36 million a year in interest payments, repurchasing a third of the shares at $40 each.

"The board cannot have it both ways, at the same time arguing that a $52.50 per share sale would undervalue the business and not buying back a significant number of shares in the context of $40 per share. If the board does not have the confidence to lever the Company reasonably (approximately 2x EBITDA) to buy back a third of its shares outstanding, then it cannot argue that a sale at $52.50 per share is not the best outcome for the shareholders," the letter stated.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ANN $44.89 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs