Dress Barn scores on buy; Legg Mason sale rumors viewed skeptically; hostile deals on the rise

By Cristal Cody

Tupelo, Miss., June 25 - Dress Barn, Inc. shareholders scored big with the $157 million stock-and-debt acquisition of Tween Brands, Inc. announced on Thursday, an analyst told Prospect News.

In other action on Thursday, a market source said that rumors of a sale of Legg Mason Inc. are off target for several reasons.

Meanwhile, 2009 is becoming a banner year for the number of hostile takeovers underway, a research group said.

In fact, on Thursday, Exelon Corp. continued to press its hostile bid for NRG Energy, Inc., as did Validus Holdings, Ltd. for a union with IPC Holdings, Ltd.

On Wall Street, stocks broke out of their slump.

The Dow Jones Industrial Average rose 172.54 points, or 2.08%, to close at 8,472.40 on Thursday.

The Standard & Poor's 500 index added 19.32 points, or 2.14%, to 920.26, and the Nasdaq Composite index closed up 37.20 points, or 2.08%, at 1,829.54.

Retailers combine

Dress Barn sought out a deal with Tween Brands, Mike Rayden, chairman and chief executive officer of Tween Brands, said on Thursday's conference call with analysts.

"The company was not for sale in any shape, way or form," he said. "David [Jaffe] approached us. It wasn't about a premium at the moment. It was more about the ratio and opportunity going forward."

Jaffe, president and CEO of Dress Barn, said on the call that Tween's board "wanted [investors] to have equity. They weren't willing to do a deal for cash because they wanted to benefit from the upside we all think is going to happen."

The combined companies will operate more than 2,400 stores.

Under the terms of the $157 million stock-and-debt merger agreement, each share of Tween Brands will be exchanged for 0.47 shares of Dress Barn.

Based on Dress Barn's stock price of $13.24 on Wednesday, the deal values Tween shares at $6.22 each. The bid represents a 20.00% premium for Tween Brands' stock based on Wednesday's closing price.

The transaction is expected to close in the fourth quarter. The offer must be approved by shareholders of Tween Brands and receive federal Hart-Scott-Rodino antirust clearance.

New Albany, Ohio-based Tween Brands operates the Limited Too and Justice brands.

Suffern, N.Y.-based Dress Barn is a retailer of women's apparel and has dressbarn and maurices stores in 44 states.

The deal includes a $5.15 million breakup fee, executives said.

"We don't expect any challenges," Jaffe said on the call. "We feel highly confident it will close."

Dress Barn's stock added $1.17, or 8.84%, to close at $14.41, near its annual high of $17.93 a share, on news of the deal.

Linda Tsai, an analyst with MKM Partners LLC, told Prospect News on Thursday the stock rise is probably because Dress Barn is getting a great deal.

"Tween is operating at distressed levels. They're basically buying it at three times EBITDA level when a lot of retailers have gone for nine to 10 times," she said. "They got a very good price for it."

Shares of Tween Brands closed up $1.45, or 27.99%, at $6.63 on Thursday. The stock has traded from $1.01 to $18.23 over the past year.

Legg Mason sale unlikely

Shares of Legg Mason rose as high as $26.74 early Thursday on speculation that an activist shareholder planned to acquire a larger stake of the company before settling up 9 cents, or 0.37%, at $24.57.

Shares of the Baltimore-based asset management firm have traded from $10.35 to $51.66 over the past year.

Speculation was fueled by media reports that an investment firm owned by Nelson Peltz was planning to increase its stake in the company.

A market source said Thursday that "this is the last thing LM needs."

The stock "has been a weak performer because it acquired Citigroup's money fund business."

Now, "confusion around ownership and potential strategic plans will likely stymie new business, thus prolonging a much needed turnaround," the source said.

Year of hostility

Hostile offers have accounted for 47% of the mergers and acquisitions that have taken place in less than six months of 2009 - compared with 24% in all of 2008, the Conference Board Governance Center, a not-for-profit business research group, said in a report released Thursday.

"Today's market conditions permit some companies to be put in play more easily than before," Frederick H. Alexander, author of the report and a partner at Morris, Nichols, Arsht & Tunnell LLP in Wilmington, Del., said in a statement.

Several companies are fending off drawn-out fights to force sales.

Princeton, N.J.-based NRG has rejected Chicago-based Exelon's offer every step of the way since it was made in October 2008.

On Thursday, Exelon said in a letter to NRG Energy shareholders that its offer is "worth more to NRG shareholders today than when it was first announced last October."

Exelon urged NRG shareholders to vote in favor of its proposals to expand the board to 19 directors and elect nine new directors at NRG's annual shareholders meeting on July 21.

Exelon has offered 0.485 of an Exelon share for each share of NRG in a deal valued at about $5.15 billion.

"We will not be deterred by NRG's stubborn desire that we simply go away," Exelon said in the letter.

NRG shares gained 37 cents, or 1.58%, to close at $23.81 on Thursday.

Exelon's stock closed up 85 cents, or 1.69%, at $51.00.

In other hostile situations, Validus touted Thursday that its call for a special meeting of IPC shareholders received backing from proxy advisory firm RiskMetrics Group Inc.

Bermuda insurer Validus seeks to replace the board of IPC, also a Bermuda insurance firm, with three of its candidates at the meeting.

"By calling the special meeting, shareholders will send another strong message to IPC's board that they want to receive the attractive economics of the Validus offer," Ed Noonan, Validus' chairman and CEO, said in a statement.

Analysts had given Validus given little chance at disrupting a combination of IPC Holdings and Max Capital Group Ltd. But IPC shareholders voted down the amalgamation with Max Capital on June 12.

Validus has offered $3.75 in cash and 1.1234 shares for each IPC share for a current value of $28.25 per IPC share based on Validus' stock closing price on Wednesday.

Validus' exchange offer for IPC shares ends on Friday.

IPC shares closed up 70 cents, or 2.63%, at $27.30.

Shares of Validus rose 34 cents, or 1.56%, to $22.15.

Max Capital's stock lost 3 cents, or 0.16%, to close at $18.43.

Mentioned in this article:

Dress Barn, Inc. Nasdaq: DBRN

Exelon Corp. NYSE: EXC

IPC Holdings, Ltd. Nasdaq: IPCR

Legg Mason Inc. NYSE: LM

Max Capital Group Ltd. Nasdaq: MXGL

NRG Energy, Inc. NYSE: NRG

Tween Brands, Inc. NYSE: TWB

Validus Holdings, Ltd. NYSE: VR

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