The dealmakers have been quiet lately, but that doesn’t mean they haven’t been busy.
This story first appeared in the November 22, 2013 issue of WWD. Subscribe Today.
The auctions to sell The Jones Group Inc. and Fifth & Pacific Cos. Inc.’s Lucky Brand division are entering their final stages, with deals expected to wrap up by Thanksgiving or shortly afterward, according to multiple sources.
Next up might be the beleaguered Aéropostale Inc. — at least if the growing number of shareholders agitating for change have their way.
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At Jones, Stefan L. Kaluzny’s private equity firm Sycamore Partners is said to be the last bidder standing and is lining up financing to buy the whole company, which has a current enterprise value of $2 billion — including just over $1 billion in debt.
One source described Kaluzny as “a very contrarian investor, he will do things that nobody else will do.”
Jones hit the auction block this summer when Citi was hired to explore strategic options. Multiple scenarios were explored with a revolving cast of bidders, including individual sales of the footwear and apparel units. G-III Apparel Group had been weighing a bid for the apparel side of the Jones business but dropped out earlier this month.
Sycamore already owns Hot Topic, Talbots and MGF Sourcing, and might be looking to run its production operation more efficiently with volume from the Jones business. Jones and the private equity firm both declined to comment.
While it’s not clear what Kaluzny’s plans for the company are, observers don’t expect the sprawling $3.8 billion Jones empire to survive any takeover by him intact. The Stuart Weitzman and Kurt Geiger footwear businesses are generally seen as the company’s strongest assets and Jones has more than 30 brands, including Nine West, L.E.I., Gloria Vanderbilt, Jones New York, Anne Klein and Robert Rodriguez.
Strategic players and other investors have in the past expressed interest in various parts of the business and, should the deal close, would likely rekindle their efforts and try to cut an agreement with Sycamore.
If the Jones business does get trimmed, it marks the beginning of a process that its archrival the former Liz Claiborne Inc., now Fifth & Pacific, is just finishing.
Fifth & Pacific already sold off the Juicy Couture business to Authentic Brands Group and is ready to divest Lucky, paring the portfolio down to focus on the hot Kate Spade unit.
Private equity firm Advent International came close to buying Lucky this summer, but the deal fell apart on the one yard line as the second-half outlook for the denim brand weakened.
Now, at least three other private equity players are said to be squaring off to buy the company, including Golden Gate Capital, Lion Capital and Marlin Equity Partners. Fifth & Pacific, Lion Capital and Golden Gate executives declined to comment and a representative for Marlin could not be reached Thursday afternoon.
A source described the effort to sell Lucky as “focused” and said it has proven to be a complicated transaction to carve the company out of the larger business.
Then there are the specialty chains, which have been drawing some interest lately.
In September, Sycamore took an 8 percent stake in Aéropostale through its Hummingbird investment vehicle, with the eye toward acquiring the teen retailer. That’s a tactic the firm used before acquiring Talbots and Hot Topic. Hummingbird, controlled by Sycamore, has since changed its name to Lemur LLC.
Others are getting in on the same trend. On Tuesday, Dallas-based firm Hirzel Capital Management said in a regulatory filing that it holds a 6 percent stake in Aéropostale. On Thursday, activist firm Crescendo Partners said it had sent a letter to the teen retailer’s board, urging them to begin a process to sell the company.
The Nov. 21 letter was sent to Karin Hirtler-Garvey, who chairs Aéropostale’s board, from Eric Rosenfeld, Crescendo’s chairman and chief executive officer.
The letter said Crescendo is a “significant stockholder” in the teen retailer, and it intends to “nominate directors for the upcoming 2014 annual meeting” of shareholders.
Rosenfeld noted: “Although Aéropostale has embarked on a turnaround to improve same-store sales trends and close underperforming stores, we think that there is a fair amount of execution risk associated with performing this turnaround in the public market.”
The activist firm’s ceo said numerous potential buyers are likely to be interested in acquiring the retailer, given its “strong brand name, discount to intrinsic value and opportunity to return to historical profitability.”
Rosenfeld noted that his firm has an average holding period in excess of three years, and emphasized “we have firsthand experience turning around specialty retailers in the public market, and we know how much more easily it can be done as a private company.”
He urged the teen chain to set up a special committee of independent directors and hire investment bankers to “run a broad sale process.”
Investors liked the possibility of a sale of the chain, sending shares of Aéropostale up 5.6 percent to $10.60.
Executives at Aéropostale could not be reached for comment.