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Hedge fund Aria Partners disclosed that it has offered $64.2 million to buy Christopher & Banks Corp., sending shares of the retailer soaring 19.8 percent in trading Tuesday.
Shares closed at $1.39 on Tuesday in the shortened Big Board trading session before the July 4th holiday in the U.S.
The offer was first submitted to the retailer’s board on May 21, but was rejected. The offer is for shares of Christopher & Banks that Aria does not already own. As of Tuesday, Aria held a 4 percent stake in the company.
Edward Latessa, partner at Aria, said, “The deterioration of enterprise value the current management team has wrought upon the company is unprecedented.”
Latessa added that his firm’s “generous offer” to acquire the retailer at a 50 percent premium over the stock price will bring to the Christopher & Banks the “expertise, capital and manpower to right the ship.”
Executives at Plymouth, Minn.-based Christopher & Banks did not return a request for comment. The retailer did issue a statement saying, “Consistent with its fiduciary responsibilities, the company’s board of directors will review and consider this unsolicited proposal, in consultation with its financial and legal advisors, and determine the course of action that it believes to be in the best interests of Christopher & Banks and its stockholders, and communicate any such conclusion to its stockholders.”
The retailer said Piper Jaffray & Co. and Dorsey & Whitney LLP have been retained as financial and legal advisors, respectively, to assist the Board in its evaluation of the proposal.
In the July 3 letter to the board of Christopher & Banks that was publicly disclosed to the investment community, Latessa said, “[W]e feel the board’s interests are not aligned with management. Each year you spend nearly $1 million in board fees to directors that have overseen a massive deterioration in profits. Together the directors’ investment in this company represents only about four months’ worth of director’s fees. In a few short years, the company has been reduced from a peak enterprise value of $600 million, to a mere $35 million today. With the enterprise value down by nearly 95 percent, isn’t it time for a change?”
The letter continued to state that, under the “current leadership of the board, $70 million of cash has evaporated and, at the current pace, you will run out of money by yearend. This is an unsustainable situation that must be addressed.”
A source close to the hedge fund said it didn’t have a problem with the retailer’s management team. Joel N. Waller serves as chief executive officer and president, whom Aria knew when Waller was ceo of The Wet Seal Inc. Aria has since sold its stake in the teen retail chain.
The Aria source emphasized that the issues it had were specifically with the retailer’s board.
Some critics early Tuesday said it was “irregular” to disclose an offer so close to a holiday. That also has some of Aria’s hedge fund competitors that are hunting for deals in the retail and apparel space wondering if the offer was a “serious” one.
The Aria contact familiar with Tuesday’s development said the offer was indeed a serious one, noting that Latessa in his July 3 letter wrote to the Christopher & Banks board that Aria believes it “can fix this company and are willing to put up the capital, expertise and manpower to do it.”
An industry executive who keeps tabs on mergers and acquisitions activity in the sector speculated that the offer was really an attempt to smoke out other potential bidders for the retailer, figuring that if buyers know that $1.75 is the floor it might not take much for others to weigh in with a slightly higher bid.
While other hedge funds in the past year are said to have been curious about Christopher & Banks, none have gone so far as to make an offer to the retailer’s board, according to financial sources.
On June 5, the retailer posted a first-quarter loss of $13.4 million, or 34 cents a share, on a sales decline of 15 percent to $93.6 million.
Aria Partners considers itself an alternative investment-management firm, with offices in Boston and Los Angeles. In addition to its previous stake in The Wet Seal, the company was also once an investor in Kenneth Cole Productions Inc. Its other investments in the retail sector include Barnes & Noble Inc.