NEW YORK (TheStreet) --Shares of Ann Inc. (ANN), the parent company of the apparel and accessories retailer Ann Taylor and Loft, are surging higher by 21.88% to $47.18 in pre-market trading on Monday morning, after the company announced that it has agreed to sell itself to Ascena Retail Group (ASNA) for $47 per share.
The transaction gives Ann an enterprise value of $2 billion.
Ann has struggled in recent quarters due to a weak retail environment, which has been characterized by heavy discounting and strong competition, according to the Wall Street Journal.
The boards of both companies have unanimously approved the transaction, which is expected to bring in more than $7.3 billion in annual sales.
Shares of Ascena are up by 9.08% to $15.50 in pre-market trading today. The company is a national specialty retailer offering clothing, shoes, and accessories.
"Based on our board's thorough and wide-ranging review process, we are confident that this agreement with Ascena is in the best interests of Ann Inc.'s stockholders. Our stockholders will receive approximately 80% of the purchase price in cash, providing immediate and certain value, and also have the opportunity to participate in the upside of the combined company as a result of the stock portion of the purchase price. We are delighted with this outcome for Ann Inc.'s stockholders," Non-executive company chairman Ronald Hovsepian said in a statement announcing the merger.
"With the addition of the Ann Taylor and LOFT brands, Ascena will become one of North America's largest and most diversified specialty apparel retailers, with a tremendous set of opportunities to continue to expand its leadership position," Ascena CEO David Jaffe said in the same statement.
The transaction is expected to close in the second half of 2015.
Separately, TheStreet Ratings team rates ANN INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate ANN INC (ANN) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 3.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has slightly increased to $121.42 million or 9.42% when compared to the same quarter last year. Despite an increase in cash flow, ANN INC's cash flow growth rate is still lower than the industry average growth rate of 19.66%.
- The gross profit margin for ANN INC is rather high; currently it is at 50.08%. Regardless of ANN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.04% trails the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Specialty Retail industry and the overall market, ANN INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The share price of ANN INC has not done very well: it is down 5.66% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full analysis from the report here: ANN Ratings Report