Sycamore Partners To Buy Jones Group For $15 Per Share

by Trefis Team
-14.10%
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Trefis
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Jones Group
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Quick Take

  • Sycamore Partners is acquiring Jones Group for $15 per share or $2.2 billion (including debt); the deal is expected to close in the second quarter of 2014.
  • Sources close to the company stated that it started looking for prospective buyers this summer after Barington Capital’s manager joined its board.
  • Jones Group had been struggling for the past four years, as most of its segments registered substantial revenue decline.
  • Going private will allow the retailer to focus on a turnaround free of public investors’ concern for its quarterly sales and EPS targets

Multi-brand retailer Jones Group (NYSE:JNY) recently announced that it has entered an agreement with Sycamore Partners to go private. The private equity firm will buy the retailer for $15 per share in cash, or $1.2 billion.  With the company’s net debt of $1 billion, total transaction value is $2.2 billion. The cash per share is a 19% premium to Jones Group’s 30-day volume weighted average stock price for the period ended April 11, 2013. This was the last trading day before the media speculations regarding the company’s plans to sell a part of its business began. [1] In July this year, reports emerged from sources said to be close to the situation that the company hired Citigroup Inc. to explore possibilities of its sale. They also said that it had tried to sell its business to Goldman Sachs in 2006, but was unsuccessful. [2]

Since the company has been struggling for a long time and there have been speculations regarding its sale, this decision does not come as a surprise. Over the last four years, revenues from most of Jones Group’s businesses have declined substantially. With top line growth under pressure, the retailer had decided to reduce its store count and workforce to improve its profitability. [3] However, the company has now realized that going private is the best option for its revival. Sycamore Partners is known to acquire troubled apparel retailers – it has bought Hot Topic and Talbots in the past, and recently set its eyes on Aeropostale (NYSE:ARO). [4]

Currently, the transaction is expected to close in the second quarter of 2014, but is subjected to customary closing conditions. The deal requires the affirmative vote of majority from Jones Group’s shareholders, and these votes will be cast in a special shareholder meeting. We will continue to monitor any further developments related to this deal.

Our price estimate for Jones Group stands at $ 12, implying a discount of about 20% to the market price.

See our complete analysis for Jones Group

Struggling Jones Group

Over the past few years, Jones Group has struggled to sustain its growth, especially in the U.S. market. Three out of its four domestic segments have posted substantial revenue declines over the last four years. The main reason behind this was poor performance from the retailer’s second largest brand, Jones New York. Due to a competitive pricing environment, a weak response to its fashion, and its exit from J.C. Penny, the brand has been Jones Group’s weakest link. [5] In addition to this, lower shipments of Ann Klein and Evan-Picone, and weak product performances from Grane, Le Suit and Energie have also weighed on the retailer. [5]

Revenues in $millions

2009

2010 2011 2012
Domestic retail

648

651

631

584

Domestic wholesale sportswear

893

965

892

782

Domestic wholesale jeanswear

815

820

773

746

Domestic wholesale Footwear

697

842

848

919

International wholesale

186

270

329

330

International retail

41 47 260

388

Although its domestic jeanswear business has started to show some signs of revival lately, its future remains uncertain. Moreover, its most lucrative business (i.e. international retailing) is primarily relying on two recently acquired footwear brands – Stuart Weitzman and Kurt Geiger. These luxury brands are mostly confined to the European markets, where the consumer sentiment hasn’t been the best. This puts Jones Group’s lone performing segment under great risk.

Jones Group Finally Going Private

According to the sources noted above, after James Mitarotonda (manager of activist hedge fund Barington Capital Group LP) joined Jones Group’s board in May, he advised the company to shift its focus from non core fashion brands to footwear business. [6] Soon after, it hired Citigroup Inc. to search for interested parties. [2] Now, the company has entered a definitive agreement with Sycamore Partners to go private. [1]

A company may choose to go private for a number of reasons which include financial gains for CEOs and shareholders, as well as lower regulatory and reporting requirements that save money. In case of Jones Group, revival of its business appears to be the main reason behind this decision. Going private will free up management’s resources, which it can direct towards reviving the growth of its businesses. Out of view of public investors, the turnaround, rather than the attainment of quarterly earnings objectives, can be the highest priority.   Jones Group’s CEO also believes that it can reach its true potential as a private company. [1]

Private equity firms have longer holding periods of often four to eight years, and this time should allow Jones Group to focus on improving its business operations as well as undertake any major business changes needed to make it stronger in the long run. Still, much remains to be known about the transaction, including the financing of the cash portion of the deal.  Moreover, the premium to recent trading levels is is a slight 5%. Still, significant actions are required to revive the company’s storied brands. Long anticipated in the media,this take out seems likely to run its course.

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Notes:
  1. The Jones Group Announces Agreement To Be Acquired By Sycamore Partners For $15.00 Per Share In Cash, The Jones Group, Dec 19 2013 [] [] []
  2. Jones Group hires Citi to explore possible sale of company: Sources, Reuters, Jul 9 2013 [] []
  3. The Jones Group Inc. Announces Strategic Plan To Improve Profitability, The Jones Group, Apr 24 2013 []
  4. Sycamore Partners Fund Takes 8% Stake In Aeropostale, The Wall Street Journal, Sept 17 2013 []
  5. Jones Group’s SEC filings [] []
  6. The Jones Group Nominates James A Mitaronda For Election To Its Board Of Directors, The Jones Group, May 6 2013 []
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