Opportunities for synergies, management continuity, fueling growth and diversifying the offering propelled the Ascena Retail Group to strike an agreement to buy Ann Inc., beating out offers from private equity firms in the last few months.

News of the proposed $2.2 billion deal, revealed Monday morning, propelled Ann Inc. stock up almost 20 percent, or $7.69, to close at $46.40. Ascena’s stock slipped about 1 percent or 14 cents, to $14.07.

The combination is expected to lead to synergy savings of $150 million, which will be fully realized on an annual basis three years after the deal is closed, according to Ascena. The transaction is comprised of 80 percent cash and 20 percent stock. Ascena officials talked up their shared services platform as key to driving savings.

The Ann Taylor and Loft brands, with their range of upper-moderate to better-priced merchandise and updated, modern styling, will elevate the fashion image of Ascena, which is known for selling moderate prices, misses and large sizes to middle-income women, typically office workers. The divisions at Ascena, which include Lane Bryant, Dressbarn, Maurices, Catherines and Justice, have been upgrading, in some cases through designer collaborations and new marketing.

“Each brand has its own strategy, though they certainly can learn from each other. We share all of our ideas,” David Jaffe, Ascena’s chairman and chief executive officer, told WWD.

One of the main learning opportunities ahead is with Ann’s advanced e-commerce penetration, which is well over 20 percent of its total $2.53 billion in revenues.

The combination of Ascena and Ann Inc. would create a $7.3 billion, 4,900-unit specialty retail conglomerate, putting Ascena in a stronger competitive position and closer in size to the larger specialty retailers like L Brands and Gap Inc.

“Clearly, we are building a portfolio here,” Jaffe said. The proposed deal has been recommended by Ann Inc.’s board but still requires shareholder approval.

Ann Inc. probably won’t be Ascena’s last acquisition. “We are looking to buy brands that really resonate with our customer, that have well-positioned niches that we think are both defendable and expandable. The brands we have are just that,” Jaffe said during an interview.  “These brands [Ann Taylor and Loft] are a notch above our existing brands and help us diversify.

“Based on the research we have done, there is a little bit of customer overlap, almost none with Ann Taylor and a little bit with Loft,” Jaffe said. “There’s none with Lane Bryant and Catherines,” which both sell large sizes. “That’s why this is a good fit.”

“As a member of the Ascena family, our company will be poised to further enhance and grow our business,” said Kay Krill, chairman and ceo of Ann Inc., who will report to Jaffe after the closing of the deal, which is seen happening in the second half.

“I have a lot of confidence in Kay and her team to continue to run the business,” Jaffe said. Brian Lynch, who last year became president and ceo at Justice, was formerly president at Ann Taylor.

The synergies, according to Ascena, will be attained through five “major buckets,” which are sourcing, procurement, transportation, distribution and fulfillment logistics.  Back-office consolidations are inevitable, leading to some layoffs, but Jaffe said cutbacks were not a motivation for the acquisition.

Ascena could convert some locations to different nameplates in its portfolio. “It’s a possibility. We haven’t explored that,” Jaffe said.

Loft is viewed as having potential for opening more stores, while the rate of store growth has slowed on Ann Taylor. Asked how Ann Taylor could grow, Jaffe said, “Maybe not with more stores, but maybe online and through international. We are not making any commitments at this point.”

The Lou & Grey division of Ann Inc., launched last year, “is a test now,” Jaffe said. “We are really excited to see how it continues to perform.”

Cowen and Co.’s retail analyst Oliver Chen said that while the acquisition “provides a significant facelift to Ascena’s leadership in women’s with a larger fashion offering,” there’s some concern over whether the $150 million in synergies will be realized within the three-year time frame predicted. He pointed out that $100 million in synergies from the Charming Shoppes’ acquisition has taken longer than expected and Lane Bryant remains about one year behind plan in terms of profitability. Other key questions or concerns surrounding the acquisition include “managerial changes once Ann is controlled by Ascena and the impact of heightened fashion risk to merchandise margins given Ann’s gross margin volatility.”

CL King’s Steven L. Marotta said his company has a neutral rating on Ascena, but added, “We are intrigued by Ascena’s unique business model: multiple specialty store concepts layered onto a shared services platform. However, until realizing tangible benefits from a shared services platform, generating positive comps across divisions or a consolidated capital expenditures roll-off to more normalized levels — or preferably any combination of the three – we remain on the sidelines awaiting a more attractive entry point.”

Morgan Stanley’s Kimberly Greenberger said the acquisition is in the best interests of Ann’s shareholders and presents a compelling combined entity. “We are particularly encouraged by Ascena’s shared services model and the potential cost savings that come with such scale.”

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