Sycamore Seeks to Acquire Express After Buying Stake of 9.9%

Jun 12, 2014 7:40 pm ET

(Updates with poison pill in third paragraph.)

June 12 (Bloomberg) -- Sycamore Partners, a private-equity firm that focuses on retail investments, said it’s interested in acquiring the struggling clothing chain Express Inc. after amassing a 9.9 percent stake in the company.

In a letter to Express’s board, Sycamore said it would like to perform due diligence to determine a price for the retailer. The investment firm said it would submit a bid within 30 days of getting access to Express’s books. Shares of the clothing chain, which had a $1.14 billion valuation at the close of trading today, surged as much as 33 percent after hours.

Express, based in Columbus, Ohio, responded by adopting an anti-takeover plan that hinders shareholders from acquiring 10 percent or more of the company without the board’s consent. The measure doesn’t prevent the company from considering or accepting an offer, Express said. It also formed a special board committee to weigh its options.

Sycamore, which was started in 2011 by two executives from buyout firm Golden Gate Capital Corp., has been looking for opportunities in a retail economy battered by shaky consumer confidence and declining mall traffic. It previously acquired a stake in Aeropostale Inc. and extended a $150 million loan to the teen retailer.

Hot Topic

Sycamore also purchased Hot Topic Inc. for about $533.5 million last year and was in talks to buy Billabong International Ltd. before discussions broke off. The New York- based firm, which oversees more than $3.5 billion in capital, purchased Talbots Inc. in 2012.

With Express, Sycamore would be making a bigger gamble. The retailer’s market value is roughly twice as high as the Hot Topic price, and its sales and profit have fallen for two straight quarters. Express, which was previously owned by L Brands Inc., went public in 2010. L Brands sold 75 percent of its stake to Golden Gate in 2007.

The rough retail climate should make Sycamore’s bid more attractive, the firm’s managing director, Stefan Kaluzny, said in the letter.

“Given the strategic and operational challenges faced by specialty retailers generally and the company in particular, a fully financed, binding, all-cash offer to acquire the company would be a valuable alternative for the company’s board of directors and stockholders to consider,” he said.

Express shares climbed as high as $18 in extended trading after Sycamore released the letter. The stock had declined 27 percent to $13.55 this year through the close in New York.

Turnaround Plan

Express Chief Executive Officer Michael Weiss is trying to boost results by clearing out unsold inventory and relying more on factory stores. Still, analysts expect sales and earnings to continue sliding for at least two more quarters.

The retailer cut its annual profit forecast last month to as much as 90 cents a share, down from a previous range of as much as $1.23. The chain is contending with deep discounts across the retail industry and fewer shoppers at U.S. malls, where Express does much of its business. Last month the company said it planned to close 50 stores over the next three years.

Express, which targets clothing shoppers between the age of 20 and 30, had more than 600 retail and factory outlet stores as of last month. The company said today that it hired Perella Weinberg Partners LP and Sullivan & Cromwell LLP to advise the company and its new special committee.

Earlier this week, Sycamore announced it had acquired the Coldwater Creek brand and other intellectual property as part of that retailer’s Chapter 11 proceedings.