poison pill

Defenses are up. 

As retailers scurry to find ways to protect themselves amid the economic standstill caused by the coronavirus pandemic, those already struggling to stay afloat might be pushed off the edge all together. And it’s not just independent or smaller brands that are in danger. 

Names like Chico’s FAS and Tailored Brands are just two examples of companies that have adopted a so-called “poison pill,” to help during difficult times. The plans are simple: companies try to make acquisition of their stock prohibitive enough that it deters raiders from wanting to take them over. 

In the case of Chico’s FAS, which includes White House|Black Market, Soma and TellTale, in addition to the nameplate brand, its board adopted a limited-time shareholder “Rights Plan.” 

Beginning at the close of the April 13 trading day, each share of common stock can be purchased with one “right.” Rights are only exercisable if an individual or group acquires 10 percent or more of the company’s common stock, 20 percent in the case of certain passive investors. 

Once the rights become available, the shareholder will be able to purchase additional shares of common stock at the “then-current exercise price (which was initially set at $12 per right).” That’s nearly 12 times Friday’s trading price, when shares were priced just over $1 a share. 

To make matters more complicated, rights held by individual investors or groups “whose actions trigger the Rights Plan, and those of certain parties,” can become void. 

The plan expires on April 1, 2021, and “is intended to protect the interest of the company and its shareholders by reducing the likelihood that any person or group gains control of Chico’s FAS through open-market accumulation or other tactics without paying an appropriate control premium,” the retailer said in a statement. 

“Given the current environment and trading levels as well as the importance of maintaining focus on the company’s operations, safeguarding the welfare of employees and serving customers, the board believes adopting the Rights Plan is in the best interest of all Chico’s FAS shareholders,” the statement continued. 

Chico’s stock, which was trading up nearly 8.5 percent during Friday’s trading session, is down nearly 75 percent year-over-year — more than 70 percent in the last month. 

Despite plans to pivot to digital, the retailer’s large store fleet — 1,341 stores in North America, all of which temporarily closed March 17 to prevent the spread of the coronavirus — means, even with each brand’s web site open, it is likely to have a substantial loss in revenues in the near term. As of Friday, the company said stores will remain closed until further notice. 

Tailored Brands, parent company to Men’s Wearhouse, Jos. A. Bank and other stores, employed a similar tactic earlier in the week when it issued a short-term shareholder rights plan, preventing investors from acquiring large chunks of the company’s stock while the price has been lowered. 

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