Talbots activates strategy; Peet's keeps up deal plans; delay likely for Cablevision spinoff

By Cristal Cody

Tupelo, Miss., Dec. 8 - Specialty women's retailer Talbots, Inc. moved to ramp up its growth strategy on Tuesday with plans to buy out its majority stockholder and acquire shell company BPW Acquisition Corp. to use the cash to retire $330 million of debt.

Talbots said in a statement on Tuesday that the deal also will provide access to a new secured debt facility and re-establish the company with a strong financial profile for the next growth stage.

Meanwhile, Green Mountain Coffee Roasters, Inc. appears to have won the bidding for Diedrich Coffee, Inc. with its final $290 million cash offer, although Peet's Coffee & Tea, Inc. said it will continue an exchange offer at its original terms.

Despite Peet's assertions, Green Mountain's acquisition of the Irvine, Calif.-based specialty coffee distributor and roaster should have no antitrust issues, a market source told Prospect News.

In other situations, an analyst said that Cablevision Systems Corp. is expected to delay the spinoff of its Madison Square Garden division until January to avoid holding a roadshow during the holiday.

Stocks fell on Tuesday, with the Dow Jones Industrial Average down 104.14 points, or 1.00%, at 10,285.97.

The Standard & Poor's 500 index fell 11.31 points, or 1.03%, to 1,091.94. The Nasdaq Composite index lost 16.62 points, or 0.76%, to close at 2,172.99.

Talbots to retire debt with deal

Talbots said in a statement on Tuesday that its financing plan involves three transactions, including the acquisition of BPW for $11.25 in Talbots stock per share. The exchange ratio will be 0.9 to 1.3235 shares of Talbots for each BPW share.

The second transaction involves the retirement of all equity and debt held by Talbots' majority stockholder, Aeon (U.S.A.), Inc.

Talbots will repay all the company's debt held by Aeon and retire Aeon's 29.9 million shares of Talbots for $491 million in cash and 1 million warrants.

Aeon, Japan's second-largest retailer, holds a 54% stake in Talbots.

As the final part of the turnaround strategy, Talbots said it has a commitment for a new $200 million senior secured revolving credit facility from GE Capital to use to fund the transactions and for ongoing working capital needs.

The acquisition of BPW, a special-purpose acquisition company formed in 2007 to conduct a transaction, is subject to approval from its stockholders and at least 90% of warrant holders.

The transaction is subject to clearance under the federal Hart-Scott-Rodino Antitrust Improvements Act and completion of the debt financing.

All three transactions are expected to close in the first quarter.

Over the past two years, the Hingham, Mass.-based company, founded in 1947, has implemented a growth plan to divest non-core businesses, streamline its cost structure and renovate its supply chain. Talbots operates 589 Talbots brand stores in 46 states, the District of Columbia and Canada.

Adrienne Tennant, an analyst with FBR Capital Markets & Co., said in a research note released on Tuesday to Prospect News that the company has made progress.

"Through our checks in [the third quarter], we noted exceptionally lean inventory levels and strong full-price selling," Tennant said. "As the company pushes forward in the turnaround effort, we note CFO Michael Scarpa is effectively managing costs and, thus far, has delivered on the financial goals given to the Street. Under the leadership of [chief executive officer] Trudy Sullivan, TLB has accomplished a great deal to stabilize the balance sheet, exit J. Jill, and improve product."

Shares of Talbots climbed $1.02, or 14.15%, to $8.23 on Tuesday.

BPW's stock closed up 47 cents, or 4.77%, at $10.32.

Cornering the coffee market

After Green Mountain made a rival bid of $35.00 a share in cash for Diedrich, Peet's had until Monday to renegotiate a proposal under its merger agreement.

Diedrich had originally agreed in November to a transaction with Peet's at $26.00 a share in cash and stock.

As required under the merger agreement, Peet's received an $8.52 million termination fee from Diedrich, which was paid for by Green Mountain.

Diedrich said in a statement on Tuesday that its chairman, Paul Heeschen, and other directors and executives with more than 32% of the company's outstanding stock have agreed to tender their shares to Green Mountain.

Emeryville, Calif.-based Peet's said in a statement late Monday that it will not enhance its offer, but it will leave in place its original exchange offer to acquire Diedrich for cash and stock valued at $26.00 a share. Peet's most recent offer of $32.50 a share in cash and stock has expired.

Peet's open offer includes $17.33 in cash and a fraction of a share that together equal $26.00 per Diedrich share. The exchange offer is scheduled to expire on Dec. 15, but Peet's said it intends to extend the offer.

"We expect to be in a position to close a transaction within a matter of weeks. Conversely, it is our view that there are significant antitrust issues and resulting timing and closure risks associated with GMCR's competing proposal," Patrick O'Dea, Peet's president and CEO, said in the statement.

With the acquisition of Diedrich, Green Mountain would control a majority of the licensees for the popular Keurig coffee maker and its single-serve K-cup portions.

But any antitrust concerns are absurd, a market source told Prospect News on Tuesday.

"If you don't want to buy into the system, then just buy a Mr. Coffee machine or buy Dunkin' Donuts' coffee. No one's cornered the market on coffee," the analyst said. "They probably will look at it more closely with Peet's causing a little bit of a fuss, but I don't see any antitrust concerns."

The transaction is subject to regulatory approvals, but Waterbury, Vt.-based Green Mountain said that it has "thoroughly evaluated this transaction and is confident it can consummate the transaction promptly in early 2010."

The proposal includes a graduated reverse break-up fee that starts at $8.52 million if the deal is terminated before Feb. 15.

Diedrich shares slipped 47 cents, or 1.34%, on the news to close Tuesday at $34.68.

Green Mountain's stock climbed $2.43, or 4.02%, to $62.82.

Shares of Peet's gained 96 cents, or 3.10%, to close at $31.95.

MSG roadshow coming up

Meanwhile, Richard Greenfield, an analyst with Pali Capital Inc., said in a note on Monday that Cablevision should complete the spinoff of the Madison Square Garden division by late January.

The company had expected the split to be completed by the end of 2009.

"We believe management remains firmly committed to the MSG spin, however, the regulatory approval process has taken longer than expected and Cablevision is unlikely to launch a roadshow in the midst of the holidays," Greenfield said. "In turn, we expect a roadshow for the MSG spin to begin shortly after the new year.

Cablevision representatives were not immediately available for comment.

Bethpage, N.Y.-based Cablevision also owns the AMC, IFC and Sundance cable networks. The company's Madison Square Garden division includes the New York Knicks basketball team, Radio City, Beacon Theater and Chicago Theater.

In a spinoff, the division is expected to be valuated at more than $1 billion, or $3.36 a share, and "could easily be worth over $5/share as investors learn more about the business during the management roadshow in January," Greenfield said.

Cablevision shares rose 5 cents, or 0.20%, to end trading at $25.57 on Tuesday.

Mentioned in this article:

BPW Acquisition Corp. AMEX: BPW

Cablevision Systems Corp. NYSE: CVC

Diedrich Coffee, Inc. Nasdaq: DDRX

Green Mountain Coffee Roasters, Inc. Nasdaq: GMCR

Peet's Coffee & Tea, Inc. Nasdaq: PEET

Talbots, Inc. NYSE: TLB

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.