Friday, June 26, 2009

Hey, it's the 80's! (DBRN, TWB)

AlphaNinja - That quote from Karate Kid came to mind when I saw the Tween Brands (TWB) website. Is it me or could the girl on the left play a part in any number of 80's classics????

Moving on - Dressbarn announced a deal to buy Tweenbrands yesterday in an all-stock deal for aboout $157million and the assumption of TWB's debt. What is really cool about this is that BOTH stocks rose yesterday. Typically in an all-stock deal, the acquirer's stock drops while the company being acquired rises. The reason that they rose is probably because DBRN paid such a ridiculously low price for the (flawed but fixable) TWB business.

The terms:

Under the terms of the merger agreement, each share of Tween Brands, Inc. common stock will be exchanged for 0.47 shares of Dress Barn, Inc. common stock. Based on Dress Barn Inc.’s stock price of $13.24 as of June 24, 2009, this consideration would be equivalent to $6.22 per Tween Brands, Inc. share, representing an aggregate equity value of approximately $157 million.

At the time of annoucement, the deal was for $6.22 for each TWB share, but right now TWB shares are fetching $6.64, about 7% above the deal price. Companies that agree to be purchased in share-exchange deals are hitching their fortunes to the buyer's stock. That was BAD news back in the 2000(ish) timeframe when stock's were hugely inflated, but good news if the acquirer is making sound decisions. Yesterday's deal tells us a few things.

The most striking detail is that this buyout valued TWB at .14 times sales --->>> a ridiculously low multiple compared to the rest of the apparel retail universe. This is an embarrassment for TWB's management, to effectively throw in the towel at such a low valuation. Fortunately for TWB shareholders, the market is looking favorably at Dressbarn's savvy dealmaking, which they have hitched their fortunes to by way of the stock-exchange deal.

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