DAYTON, Ohio — It looks like a win-win situation for The Elder-Beerman Stores Corp. and its shareholders.
On Thursday, the troubled regional department store chain signed a definitive merger agreement to be sold for about $180 million to Wright Holdings Inc., a company formed for the acquisition by the Goldner Hawn Johnson & Morrison Inc. private investment fund based in Minneapolis.
Elder-Beerman’s senior management, led by Byron “Bud” Bergren, president and chief executive officer, and Edward Tomechko, executive vice president and chief financial officer, is staying in place and expected to own at least 10 percent of the new holding company. The announcement confirmed a June 13 WWD report that the retailer’s management was involved in negotiating to buy the chain.
Shareholders will get $6 per each common share, more than twice the average selling price of $3 during the 30 days prior to May 16, when the company disclosed it was in exclusive negotiations to be sold. The stock closed at $5.80, up 49 cents, or 9.2 percent, Thursday on the Nasdaq.
The deal includes $69 million in equity, based on the $6 a share price times 11.5 million outstanding shares, and net debt inherited by Wright of about $110 million. The value is over five times EBITDA of $33.4 million in the past 12 months — a good multiple for a regional chain to command.
The deal is subject to approval by holders of two-thirds of the common shares, Wright finalizing all the financing, and any higher offers that could come in, though Bergren said none had been received. It beat out a $5.50 offer from EB Acquisition Ltd., an Ohio-based real estate investor and developer.
Shareholders will vote on the merger in mid-to-late September. Elder-Beerman’s independent directors unanimously approved the merger and will recommend it to shareholders. All of the company’s 10 directors except Bergren are independent.
The merger provides the company with an infusion of capital for ongoing operations and expansion, and takes the company private, meaning Elder-Beerman won’t have to deal with the reporting and growth demands of Wall Street anymore. But the firm still faces a tough competitive landscape, where the giant national chains have been taking market share from regional players.However, Bergren upheld the long-term viability of his store, stating, “We have been successful in a difficult retail operating environment in reducing debt and building a workable strategy.”
Bergren’s strategy involves opening two or three new-format stores a year, mainly in smaller or mid-sized markets in the Midwest where Kohl’s and other big competitors have yet to enter. The new stores have 55,000 square feet — versus 70,000 on average for the older stores — and feature central customer service centers for faster checkouts, self-select cosmetics, a combined juniors’ and young men’s shop called The Zone, and a bridal registry kiosk. Eleven such stores are operating, and another will open in Muscatine, Iowa, in November.
“No one can complain about this deal,” said William M. Smith, president of Financo Inc. “It gives 100 percent return to stockholders, and they don’t have to worry about the issues facing public companies today. Elder-Beerman management was successful bringing a source of funds that allows this company to actually have some capital for growth.”
Considered the nation’s ninth largest independent department store chain, the Dayton, Ohio-based Elder-Beerman operates 68 stores in Ohio and seven other states. The chain posted net sales of $639.8 million last year compared with $643.1 million in 2001, and a net loss of $14.2 million, including special items.
Wright Holdings is owned solely by Marathon Fund Limited Partnership IV, a private investment fund managed by Goldner Hawn. Wright received written commitments from Marathon and affiliates of Fleet Financial Group to fund the merger and provide working capital.
Michael Sweeney, managing director of Goldner Hawn, is expected to become chairman of Elder-Beerman succeeding Steve Mason, the nonexecutive chairman.
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