March 7, 2009
Dress Barn Inc. is acquiring New Albany apparel retailer Tween Brands Inc. in a stock-swap transaction, the companies announced Thursday.
Suffern, N.Y.-based Dress Barn said the deal, expected to close in October, will give Tween shareholders about 16 percent of Dress Barn stock. Based on terms of the transaction, the company is paying about $157 million for Tween shares and paying off the retailer’s outstanding bank debt. Tween in regulatory filings reported an outstanding balance of more than $166 million on its credit facility, but company officials valued the deal at roughly $220 million. A representative wasn’t immediately available to explain the discrepancy.
Tween, which runs more than 900 stores under the Justice and Limited Too nameplates, will become a subsidiary of the more than 1,500-store Dress Barn chain.
Tween CEO Michael Rayden, in a conference call Thursday, said the company is in a stronger financial position under Dress Barn than as a standalone business, particularly in regards to access to capital. And with much of the financial duties shifting to Dress Barn, he said, the Tween team can focus on merchandising and marketing.
Rayden will continue to manage Tween but report to Dress Barn CEO David Jaffe.
Jaffe called the transaction “strategically compelling” for his company and said providing trendy merchandise at a value price is a formula his company is well-acquainted with.
For Dress Barn, the Tween acquisition is a move to diversify its business, which operates under the Dressbarn and Maurices nameplates. The company has about a dozen stores in Central Ohio, with Dressbarn targeting women in their 40s and Maurices aiming at women in their 20s.
“Those are my girls’ moms,” Rayden said, referencing Tween’s core customer base of girls age 7-14.
He said the chains will have cross-promotional opportunities once customer databases are shared.
Jaffe said Tween will continue to be headquartered in New Albany, but that some cost reductions will come from eliminating duplicate public company expenses. Both he and Rayden declined to share specifics, but it could mean more job cuts for Tween, which already has cut 235 jobs in the past year as it transitioned from its onetime flagship Limited Too stores to its smaller – but lower-priced – Justice brand.
Rayden said between 30 and 40 stores still have the Limited Too branding and will not be converted until lease negotiations finish.
Jaffe said Dress Barn is confident in Rayden and his long-term strategy and admitted that it was the transition to the lower-priced Justice brand that initially piqued the company’s interested in acquiring Tween.
“The business is well-positioned,” he said. “This is a unique niche. They have no direct competition.”
Rayden said the company was not pursuing a sale, but when approached by Dress Barn agreed that a deal made sense. Tween has struggled amid a pullback in consumer spending that helped push sales at company-owned stores open at least a year down 12 percent in its last fiscal year.
Tween lost $17 million on $995 million in revenue in its fiscal year ended Jan. 31 and last month reported a $1.4 million fiscal first-quarter loss.
The combined company would have annual sales of about $2.4 billion and operate 2,465 stores.
The boards of both Dress Barn and Tween have approved the deal, which requires Tween shareholders’ approval.
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