NEW YORK ( The Deal) -- Ascena Retail Group (ASNA), the Mahwah, N.J.-based retail conglomerate, will acquire Ann Taylor operator Ann (ANN) for nearly $2.15 billion in cash and stock, Ascena said Monday. The deal is expected to close in the second half of 2015.
Ascena's stock fell 3.3% Monday to $13.75 while Ann's stock spiked nearly 19% to close to $46.
Ascena announced the deal even as some of its own retail apparel banners struggle, namely its retail chain Justice, and as legacy, mall-based retailers more broadly face headwinds. This is why Ascena's enterprise value has hovered around the mid-single digits as a multiple of Ebitda, even as valuations in other consumer and retail sectors such as food continue to soar.
Ann shareholders will receive $37.34 in cash and 0.68 of a share of Ascena common stock in exchange for each share of Ann common stock. With about 45.7 million shares outstanding as of Feb. 27, Ann shareholders will receive about $1.7 billion in cash and approximately 31 million shares of Ascena in total.
Those 31 million shares are worth about $440 million as of Ascena's Friday closing price of $14.21 per share and would constitute a 16% stake in Ascena. Considering that Ann has about $200 million in cash and little debt, that would give the parent of Ann Taylor and Loft an enterprise value of $1.94 billion.
Ascena said the offer worked out to be an offer of $47 per share in total for Ann, a 21.4% premium to the target's closing price on Friday.
The acquirer said that it identified $150 million in annual cost savings due to synergies that it would fully generate in three years. It also said it will finance the transaction with bank debt, with Goldman Sachs and Guggenheim Securities arranging committed financing.
Ascena has about $200 in cash and nearly $130 million in debt. The debt to finance the deal would greatly increase the retailer's leverage. And if the deal is approved by shareholders, it would likely remove Ascena itself as a potential take-over target, and preclude moves such as stock buybacks.