By  on December 6, 2011

Sycamore Partners, the private equity firm that took a 9.9 percent stake in The Talbots Inc., has offered $186.8 million in cash to buy the remaining shares it doesn’t own to preserve its investment.

In a letter dated Dec. 6 to Gary M. Pfeiffer, the chairman of Talbots’ board, the private equity firm expressed concerns about Talbots’ “current condition and future direction.” The letter was made public in a regulatory filing Tuesday with the Securities and Exchange Commission.

The letter said the cash offer at $3 a share “represents a premium of 92 percent to the closing stock price of $1.56” on Tuesday.

There were 69.1 million shares outstanding for the third quarter ended Oct. 29, of which Sycamore needs to acquire 62.3 million shares, or 90.1 percent of the balance of shares it doesn’t already own. At $3 a share, that would place Sycamore’s valuation of Talbots, including the 9.9 percent stake it owns, at $207.3 million. The current market capitalization of Talbots is $107.8 million, based on Tuesday’s closing price. Shares of Talbots rose 68.6 percent, or $1.07, to $2.63 in after-market trading shortly following the disclosure of the SEC filing.

Sycamore in the letter noted that Talbots announced the retirement of chief executive officer Trudy F. Sullivan “without identifying a suitable replacement,” and that the firm dismissed its chief creative officer, Michael Smaldone, and “failed to hire a replacement.” Smaldone left in September.

Sycamore also noted the multiyear decline of the stock price, as well as liquidity concerns given that the company “ended the third quarter with $19.3 million in cash, that it had used $124.9 million of its $200 million revolver and had added trade payable financing through Li & Fung of $39.4 million.”

“Given the company’s rapidly deteriorating situation during the critical holiday shopping season, we believe expeditious action is needed to protect shareholders’ investment in Talbots,” Sycamore said, noting the reason it was making its offer.

The private equity firm also said if the board were to provide it with access to information, “we could potentially get to a position where we would consider increasing our offer for the company.”

The offer requires approval of the board and shareholders.

Sycamore said it had a meeting with the firm’s ceo and chief financial officer several weeks ago, but that the board has since “rebuffed our efforts” for further discussions.

Talbots on Dec. 1 said, for the third quarter ended Oct. 29, it lost $22 million, or 32 cents a share, against income of $17 million, or 24 cents, a year ago. Excluding special items of $6.6 million for costs such as restructuring charges and impairment of store assets, the adjusted loss from continuing operations was $15.5 million, or 22 cents a share, against income of $18.7 million, or 27 cents, last year. Sales fell 6.6 percent to $279.5 million from $299.1 million, with consolidated comparable-store sales falling 4 percent.

The company also announced a cost-reduction plan for next year.

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