Talbots' New Owner Restructure Debt, Steers New Course

Posted on December 9, 2009

Fashion retailer Talbots has a new owner which has already put into place an aggressive plan to retire old debt and increase liquidity. Talbots is now owned by BPW Acquisition Corp., a company that was formed for the acquisition. The new owner paid off the $491 million owed to the former majority owner, which is a subsidiary of the Japanese retail company Aeon. BPW took $300 million from its trust plus another $200 million from GE Capital and paid off the majority owner, a subsidiary of the Japanese retail giant Aeon. Once all the dust is cleared, BPW will own between 60-69% of the stock of The Talbots Inc.
While analysts weren't surprised Talbots would make a dramatic move to extract itself from its onerous liquidity problems, many were surprised the retailer managed a third-quarter profit, also announced Tuesday.

*****

The deal, which is expected to close by the end of the first quarter of next year, calls for Talbots to issue between 38 million and 56 million shares to BPW shareholders in accordance with a floating exchange ratio based on the retailer's trading price prior to closing.

*****

While BPW will help choose the independent directors, chief operating officer and chief financial officer Michael Scarpa stressed this was a financially oriented acquisition and that BPW would not have day-to-day involvement in Talbots. The transaction, which should allow Talbots to reduce its debt by about $330 million, "puts the company in a great position from a balance sheet perspective," he said.
Going forward the company intends to have a different strategy. It sold off the unprofitable J. Jill to Jill Acquisition LLC, an affiliate of Golden Gate Capital, entered into a new buying agreement, has relaunched its website and drastically cut expenses and inventory costs. The company is also making some changes to the styling of its clothing. It will keep a classic look, but will update the pieces to give it a more modern feel. The new owners are billing it as a turnaround story, but this is a very challenging environment for retail.