Cinderella finally made it to the ball.
Since December, Goldman Sachs (NYSE: GS) has pitched Claire's Stores (NYSE: CLE) to potential buyers -- to no avail. Scuttlebutt suggested lukewarm interest among prospective suitors. That may have been true, but yesterday, private equity firm Apollo Management L.P. agreed to buy the retailer for $3.1 billion in cash.
Claire's operates roughly 3,000 stores stocked with jewelry items for teens. The company has dominated its category, and it knows how to fend off competitors such as dELiA*s (Nasdaq: DLIA), Hot Topic (Nasdaq: HOTT), and Tween Brands (NYSE: TWB).
But investors are now concerned that Claire's has already saturated the U.S. market. To sustain its growth, it will likely turn next to Europe and Canada, but such moves carry significant risk. That's partly why the stock fell from $36 in April in 2006 to $24 in June.
I'm guessing that Apollo intends to invest significant equity in the deal, to keep interest payments low and provide enough capital to expand Claire's business. The firm did likewise with its $1.3 billion buyout of Linens 'N Things in November 2005, in which Apollo's equity commitment was about half the purchase price.
For confirmation, we'll need to wait a few weeks for Claire's proxy statement. The document will also show how many real bidders came to the table. According to a recent story in Women's Wear Daily, Apax Partners was rumored to have dropped out of the bidding because the price was too high.
Despite the activity, Foolish investors would have been smart to stay on the sidelines in this deal. On the day of Goldman's hiring, Claire's stock increased 5% to $33.36. Apollo's offer? $33 per share.
Further fashionable Foolishness:
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 1,590 out of 24,619 in Motley Fool CAPS.
Terms & Conditions
RSS Headlines
Fool UK