(Reuters) – An activist investor urged women’s apparel retailer Ann Inc to sell itself, saying it could fetch as much as $2.52 billion, failing which each of the company’s board members should buy back stock as a “sign of confidence.”
Engine Capital LP, which along with Red Alder LLC controls “in excess of 1 percent” of Ann’s stock, said in a joint letter to the company’s board that Ann would be worth between $50 and $55 per share to a private equity firm or even more to a “strategic buyer”.
The valuation represents a premium of as much as 47 percent to Ann’s Friday closing price of $37.52, which valued the owner of the Ann Taylor and Loft brands at $1.72 billion.
An offer for $50-$55 per share would be worth about $2.29 billion to $2.52 billion, according Reuters calculations based on Ann’s shares outstanding as of Aug. 2.
“… We think the status quo is untenable,” said Engine Capital, which describes itself as a value-oriented special situations fund that invests both actively and passively in companies undergoing change.
The fund said Ann should also appoint a special committee to conduct a strategic review.
But it said the committee should consist of only independent board members with its own legal and financial advisors as it was “concerned about management intentions and, in particular, are aware of (CEO Kay) Krill’s preference for the status quo of remaining a public company”.
Engine Capital said if Ann’s board decided that a sale was not in the best interest of shareholders, each board member should buy back stock roughly worth twice their annual compensation as “a sign of confidence”.
The fund also asked Ann to consider borrowing $600 million to buy back a third of its stock at $40 per share, which it said would “better enhance shareholder value relative to the status quo”.
Ann said in a statement it welcomed communications with its shareholders and that the board and management team were “committed to creating value” for all shareholders.
Earlier this year, private-equity firm Golden Gate Capital disclosed a 9.5 percent stake in Ann, saying it believed the stock was “significantly undervalued”.
Ann last week reported a fall in quarterly same-store sales due to lower traffic at its Loft chain, and said it expected growth to be flat to slightly negative in the current quarter.
Ann’s annual revenue growth was 5 percent in the year ended February, the slowest since 2010. Still, quarterly profits have beaten analyst estimates for the past two years, making it one of the few apparel retailers that have weathered the enduring weakness in U.S. consumer spending.Get your FREE trial or subscribe now to Buyouts to find new deal opportunities, super-charge your fundraising efforts and track top managers.