Tween Brands Merges with Dress Barn

Tween Brands is up 30% today on news of the all stock deal with Dress Barn (DBRN). Its interesting that DBRN is up 10%+ on the news. Its very uncommon for an acquirer to increase on news of a purchase. Our take is that the market sees this as a steal by DBRN considering they were able to buy a premium brand for about 85% lower then its peak valuation. My only concern is that TWB has some stuff hiding in the closet for their BOD to agree to such a minimal price of $137M when they still have sales in the $1B range. Being that its an all stock deal they do still get the opportunity to participate in any further market rallies and to any rebound in the Justice line, though on a very diluted basis. In general your getting mostly an investment in DBRN going forward.

Highlights of the deal:

  • Stock-for-stock merger expected to be neutral to earnings in the first full year of combined operations and accretive thereafter
  • Dress Barn, Inc. to add 908 Justice stores, the leading specialty apparel retailer to tween girls
  • Combined company to operate 2,465 locations, generating $2.4 billion of pro forma net sales
  • Pro forma consolidated balance sheet, after repayment of Tween Brand, Inc.’s bank debt, expected to have over $200 million in cash and investments

Our take is to step to the sidelines and cash in the investments made for our clients and personal accounts. TWB appears to have a much more valuable brand, but if management is willing to sell at these levels then they must have a reason such as a horrible Q2. DBRN is an interesting value with TWB folded in, but we'll follow from the sidelines until we better understand the reasoning for the deal.

Comments

Popular posts from this blog

Camping World: Momentum Stinks

Aurora Cannabis: Deal Or No Deal