UPDATE: June 20, 2019: Sycamore on Wednesday fired off a third bid, for $3 per share, according to a filing with the Securities and Exchange Commission. In its response, also filed with the SEC that afternoon, Chico’s said its board would review it, but noted "the Chico's FAS Board has already reviewed and unanimously rejected a previous higher-priced proposal from Sycamore," adding that "numerous" shareholders have said that they "share the view that Sycamore's proposal is inadequate."
UPDATE: May 17, 2019: Chico's board, in consultation with independent financial and legal advisors, has unanimously rejected Sycamore's second cash offer of $3.50 per share, following an earlier one for $4.30 per share, the company said on Thursday. In a statement, Board Chair David Walker expressed confidence in newly appointed interim CEO Bonnie Brooks' merchandising and marketing strategies, and said that, in light of Chico's "strong operating and financial foundation, including a portfolio of differentiated brands, loyal customers and robust omnichannel capabilities," both Sycamore offers "fail to recognize the full value of the Company and its future prospects." With each brand poised for topline growth, the portfolio stands to "deliver value to our shareholders well in excess of what Sycamore has proposed," he also said.
Chico's FAS, which runs Chico's, White House Black Market, Soma and TellTale, on Friday said its board will "carefully review" an unsolicited offer from private equity firm Sycamore Partners to acquire the company for $3.50 per share in cash. Sycamore as of May 10 owns 6.6% of Chico's shares, according to a Sycamore filing to the Securities and Exchange Commission.
Without revealing the timing, the apparel conglomerate also acknowledged that it had recently received and rejected an earlier unsolicited proposal from Sycamore for $4.30 per share in cash and that the board had unanimously determined that proposal "substantially undervalued Chico's FAS and was not in the best interests of Chico's FAS shareholders," according to a Chico's press release.
The retail group in January announced plans to shutter 250 stores over the next three years among other cost cuts. Then last month, former Hudson's Bay Co. vice chair, president and CEO Bonnie Brooks replaced Shelley Broader as Chico's CEO, president and board member. That decision "to terminate the CEO suggests that there are serious issues in the business. We believe that the Company's financial performance will continue to deteriorate absent meaningful changes," Sycamore told Chico's, according to a letter accompanying its Friday filing.
In the documents Sycamore has sent to Chico's and the SEC, the firm is emphasizing the apparel company's woes.
It's been a slow and difficult turnaround, without much to show for it. At the end of its latest quarter, Chico's FAS comps tumbled 3.8%. Store comps at Chico's fell 7.9%, 2.9% at White House Black Market and rose 6.2% at Soma lingerie. In fact, Sycamore indicated in its letter to the company that its own stock purchase to reach its 6.6% ownership threshold is the best news the apparel group has had in a while.
"We also believe that your current stock price is inflated as a result of our recent purchases and the takeover speculation typically associated with the abrupt announcement of a major management change," according to Sycamore's letter. "In our view, without those factors, the unaffected stock price would be below $3 a share."
But Chico's has also made strides, especially in lingerie. The company earlier this year debuted a tech-enabled fit bra for its Soma lingerie brand and an e-commerce pure-play brand in the segment, TellTale, aimed at millennials.
Some analysts add Sycamore's interest as another strength, viewing it "as a positive, as there has been little PE interest in specialty retail for several years now given the demise of the mall, and Sycamore's interest shows there is value in [Chico's] assets and retailers with strong brands," B Riley FBR analysts said in comments emailed to Retail Dive. "We continue to like CHS given its strong brands and the turnaround opportunity."