Shares of Ann Inc., the owner of the Ann Taylor chain, rose the most in five months Monday after two investors urged the company to put itself up for sale, saying it would boost the “deeply undervalued” shares.
Ann could fetch $50 to $55 a share in a potential acquisition, such as a private-equity buyout, investment firms Engine Capital LP and Red Alder LLC said Monday a letter. The upper end of that range would be 47 percent above Ann’s closing price of $37.52 on Friday, the most recent trading day. The funds said they hold more than 1 percent of the stock.
On Monday, Ann shares jumped 6.5 percent to $39.94.
“There is a significant gap between the trading value of Ann stock and the intrinsic value of its business,” Engine Capital and Red Alder said in the letter. Takeovers in recent years have valued competitors at eight to nine times earnings before interest, taxes, depreciation and amortization, versus Ann’s share price at about 5.5 times Ebitda, they said.
The letter comes a week after Ann cut its annual forecast, sending the shares down the most in two weeks. Its stock climbed 2.6 percent this year before Monday, trailing the 7.6 percent gain of the Standard & Poor’s 500 Index. Following the statement, shares of Ann climbed 6.4 percent to $39.94 at the close in New York, the biggest gain since March 21.
“The stock is undervalued, and they should explore options,” Liz Dunn, an analyst at Macquarie Group in New York, said in an interview. “They’re underleveraged, they have no debt. They’ve cut back on expenses, they’re very lean in a number of ways.”
She has the equivalent of a buy rating on the shares.
In a response to the letter, New York-based Ann said it welcomed “open communications with its shareholders and values constructive input,” without responding directly to the proposal.
“Our board and management team are committed to creating value for all Ann Inc. shareholders, and we will continue to take actions to accomplish this goal and position the company for growth and success,” Ann said.
Ann is upgrading its online stores to sell more clothes via mobile phones and other devices, Chief Executive Officer Kay Krill said on a conference call Aug. 22, when the company released second-quarter earnings. The retailer also will close 10 more stores than planned for the year through January 2015.
The retailer trimmed its revenue forecast for the year by 1.9 percent to $2.56 billion and predicted its gross margin would be 52 percent of sales, compared with analysts’ average estimate of 52.8 percent.
Dunn said a private-equity firm or a strategic competitor such as Chico’s FAS Inc. could buy Ann. A purchaser may look to move the retailer out of New York, which has significant rent expenses for headquarters as well as greater average employee costs and a higher tax rate than many peers, she said.
The sluggish retail industry makes it likely that the “vast majority of the company’s shareholders” would support formation of a special committee to explore alternatives for Ann, including a sale, Engine Capital and Red Alder said today. They also noted that Golden Gate Capital, a private-equity firm with a history of acquiring retail companies, is now Ann’s largest shareholder.
“We intend to start communicating with potential buyers to further garner interest in the company,” the firms said. “We would strongly encourage interested private-equity firms to send indications of interest to the company. This would put additional pressure on the board to act expeditiously.”
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