Specialty retailer Eddie Bauer Holdings (Nasdaq: EBHI) announced a 4.6% increase in same-store sales for the fourth quarter, and a 1% overall sales increase to $365 million. Alas, for investors, these are moot points; the company is being bought out for $286 million and the assumption of $328 million in debt.
However, the company recently filed an 8-K document with the SEC, which provides great insights regarding how this deal got done (or almost didn't). Here's what I found.
The deal
Eddie Bauer emerged from bankruptcy in June 2005. Two months later, it launched a new product line. Unfortunately, the results were disappointing, with continued declines in same-store sales.
The company was a mess. Same-store sales had fallen for about six years; EBITDA was expected to continue to decline in 2006 and 2007; and there were vacancies in critical areas, including the chief operating officer, chief marketing officer, and a variety of VP positions. Because of the deterioration, the company was limited by its loan covenants, unable to increase expenditures on marketing and capital improvements.
So in May 2006, Goldman Sachs (NYSE: GS) made a presentation to the company on various options. At that time, the board agreed to explore the sale of the company.
Goldman talked with 96 prospective buyers, of whom 45 expressed interest. After further winnowing, there were six preliminary bids (including four from private equity firms), which ranged from $4.41 to $13.00 per share.
By late September, only one investment group -- Golden Gate and Sun Capital -- submitted a final bid. The price: $7.75. With negotiation, the investment group increased the bid to $8.25 and finally to $9.25.
The bottom line
In light of the deep problems at Eddie Bauer, it's amazing that the company found a willing buyer. Then again, Golden Gate and Sun Capital have a strong background in retail, with deals for firms such as Herbalife (NYSE: HLF), Wickes Furniture, and Mervyns. Turning around Eddie Bauer will not be easy; the company's been trying to do just that for many years already.
But private equity is hungry for deals. It seems nearly every day brings a new buyout rumor, including even biggies like Gap (NYSE: GPS) and Home Depot (NYSE: HD). And if the Eddie Bauer transaction is any proof, private equity firms certainly have a high tolerance for risk.
Further rugged, outdoorsy Foolishness:
The right turnaround can be a lucrative investment opportunity. That's why
Motley Fool Inside Value
lead analyst Philip Durell is always looking for one. To see what's he found, and how he's beating the market, try Inside Value free for 30 days.
Gap and Home Depot are both
Inside Value
recommendations. Gap is also a
Stock Advisor
selection.
Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 655 out of 19,500 in Motley Fool CAPS. The Fool has a disclosure policy.
Terms & Conditions
RSS Headlines
Fool UK