By and  on April 20, 2005

NEW YORK — Several leveraged buyout firms are said to be eyeing specialty apparel chain Ann Taylor Stores Corp., and the price tag for the 738-unit chain is $2 billion, or $27 a share, according to industry and financial sources.

As of Jan. 29, the company ended fiscal year 2004 with 359 Ann Taylor stores, 343 Ann Taylor Loft stores and 36 Ann Taylor Factory stores.

A spokeswoman for Ann Taylor did not return phone calls for comment.

For buyout firms, Ann Taylor represents a more traditional — and ideal — takeover candidate.

A $2 billion purchase price would represent a 25 percent premium above the retailer’s market capitalization at around $1.75 billion, based on a share price of $24 and 72.9 million shares outstanding. That premium range is within the percentage range preferred by buyout firms, financial sources at hedge funds and buyout firms said.

Ann Taylor is also an attractive target because it’s in the middle of a turnaround scenario for its core Ann Taylor stores. A fund manager at an institutional investment firm, who requested anonymity, said, “Based on our set of calculations, we believe that a well-run Ann Taylor is capable of earning $4 a share, compared with its current $1 in earnings-per-share range.”

Talk of a buyout first surfaced in February, with rumblings that several apparel firms had considered purchasing the retailer. The chatter subsided only slightly, following the general conclusion that, at $2 billion, Ann Taylor was too pricy for even the largest of the apparel giants.

At the time, analyst Jennifer Black, who heads her own independent research firm, wrote in a Feb. 11 note, “Rumors have wildly circulated regarding a potential buyout of the company, a prospect we cannot dismiss. Based on the company’s inconsistency issues over the past several years, we would welcome a change in top leadership.”

That change came on March 17 when the specialty chain posted fourth-quarter and year-end results, along with the announcement that Kay Krill will become chief executive officer in October 2005.

Black wrote in an April research update that she believes the design and merchandising teams “have identified the root of their recent woes and are on the way to rectifying the issues at hand. We are particularly pleased with the company’s decision to part ways with its current [ceo] Pat Spainhour as of October 2005. Under his watch, the company’s business has been wildly volatile.”Ann Taylor is ripe for an LBO said one buy-side analyst whose firm owns shares of the retailer, but who requested anonymity. “The LBO profile are these stalwart brands that have been underperforming. That is really the hallmark,” he said.

The analyst described the retailer as a great brand, and said: “There’s a lot of growth opportunities. It’s selling at a low multiple of depressed earnings, so it’s selling at around five times the EBITDA range.” The analyst noted that companies typically sell at a high price when they have depressed earnings.

In addition, Ann Taylor ended the most recent quarter with zero long-term debt on its balance sheet. From a financial buyer’s point of view, said the buy-side analyst, having no debt makes Ann Taylor attractive because the company can easily take some debt on to help improve its operations.

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