UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
¨ | Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
¨ | Definitive Proxy Statement |
x | Definitive Additional Materials |
¨ | Soliciting Material Under Rule 14a-12 |
J.CREW GROUP, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
x | No fee required |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing party: |
(4) | Date Filed: |
Forward-Looking Statements:
Certain statements herein are forward-looking statements. Such forward-looking statements reflect the Companys current expectations or beliefs concerning future events and actual results of operations may differ materially from historical results or current expectations. Any such forward-looking statements are subject to various risks and uncertainties, including the strength of the economy, changes in the overall level of consumer spending or preferences in apparel, our ability to compete with other retailers, the parties ability to consummate the proposed transaction on the contemplated timeline, the performance of the Companys products within the prevailing retail environment, our strategy and expansion plans, systems upgrades, reliance on key personnel, trade restrictions, political or financial instability in countries where the Companys goods are manufactured, postal rate increases, paper and printing costs, availability of suitable store locations at appropriate terms and other factors which are set forth in the Companys Form 10-K and in all filings with the Securities and Exchange Commission made by the Company subsequent to the filing of the Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It:
In connection with the proposed transaction, the Company has filed with the Securities and Exchange Commission and mailed to its security holders a definitive proxy statement. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY ALL RELEVANT MATERIALS FILED OR FURNISHED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE DEFINITIVE PROXY STATEMENT, BECAUSE THESE MATERIALS CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the definitive proxy statement and other documents filed or furnished to the Securities and Exchange Commission by the Company at the Securities and Exchange Commissions website at http://www.sec.gov or at the Companys website at http://www.jcrew.com and then clicking on the Investor Relations link and then the SEC Filings link. The definitive proxy statement and other relevant materials may also be obtained for free from J.Crew Group, Inc. by directing such request to J.Crew Group, Inc., 770 Broadway, New York, New York 10003; or (212) 209-2500. The contents of the websites referenced above are not deemed to be incorporated by reference into the definitive proxy statement.
Participants in Solicitation:
The Company and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed transaction. Information concerning the interests of the Companys participants in the solicitation is set forth in J.Crew Group, Inc.s proxy
1
statements and Annual Reports on Form 10-K, previously filed with the Securities and Exchange Commission, and in the definitive proxy statement relating to the proposed transaction. Each of these documents is available free of charge at the Securities and Exchange Commissions website at www.sec.gov and from the Company at http://www.jcrew.com, and then clicking on the Investor Relations link and then the SEC Filings link or by directing such request to J.Crew Group, Inc., 770 Broadway, New York, New York 10003; or (212) 209-2500.
2
INVESTOR PRESENTATION
February 2011 |
2
Forward-Looking Statements:
Certain statements herein are forward-looking statements. Such forward-looking statements
reflect the Companys current expectations or beliefs concerning future events and actual
results of operations may differ materially from historical results or current expectations. Any such forward-looking
statements are subject to various risks and uncertainties, including the strength of the economy,
changes in the overall level of consumer spending or preferences in apparel, our ability to
compete with other retailers, the parties ability to consummate the proposed transaction on the contemplated
timeline, the performance of the Companys products within the prevailing retail environment, our
strategy and expansion plans, systems upgrades, reliance on key personnel, trade restrictions,
political or financial instability in countries where the Companys goods are manufactured, postal rate
increases, paper and printing costs, availability of suitable store locations at appropriate terms and
other factors which are set forth in the Companys For 10-K and in all filings with the
Securities and Exchange Commission made by the Company subsequent to the filing of the Form 10-K. The Company does
not undertake to publicly update or revise its forward-looking statements, whether as a result of
new information, future events or otherwise. Additional Information and Where to Find It:
In connection with the proposed transaction, the Company has filed with the Securities and Exchange
Commission and mailed to its security holders a definitive proxy statement. INVESTORS AND
SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY ALL RELEVANT
MATERIALS FILED OR FURNISHED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
DEFINITIVE PROXY STATEMENT, BECAUSE THESE MATERIALS CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. Investors and security holders may obtain a free copy of the definitive proxy
statement and other documents filed or furnished to the Securities and Exchange Commission by
the Company at the Securities and Exchange Commissions website at http://www.sec.gov or at the Companys
website at http://www.jcrew.com and then clicking on the Investor Relations link and then
the SEC Filings link. The definitive proxy statement and other relevant materials
may also be obtained for free from J.Crew Group, Inc. by directing such request to J.Crew Group, Inc., 770 Broadway, New York, New
York 10003; or (212) 209-2500. The contents of the websites referenced above are not deemed to be
incorporated by reference into the definitive proxy statement.
Participants in Solicitation:
The Company and its directors, executive officers and other members of its management and employees
may be deemed to be participants in the solicitation of proxies from its stockholders in
connection with the proposed transaction. Information concerning the interests of the Companys participants
in the solicitation is set forth in J.Crew Group, Inc.s proxy statements and Annual Reports on
Form 10-K, previously filed with the Securities and Exchange Commission, and in the
definitive proxy statement relating to the proposed transaction. Each of these documents is available free of charge at the
Securities and Exchange Commissions website at www.sec.gov and from the Company at
http://www.jcrew.com, and then clicking on the Investor Relations link and then the
SEC Filings link or by directing such request to J.Crew Group, Inc., 770 Broadway, New York, New York 10003; or
(212) 209-2500.
|
3
AGENDA
Business Overview
Transaction Summary
Compelling Offer
Special Committee Process
Key Special Committee Actions
Sale and Other Alternatives
Recommendation of the Special Committee
Meaningful
Post-Signing
Go-Shop
Process
Calendar of Certain Events
Market Reaction
Business Results, Outlook and Valuation Analysis
Conclusion |
4
J.CREW STORES
FACTORY STORES
DIRECT
MADEWELL STORES
Note:
Other
2%
of
revenue
consists
primarily
of
shipping
and
handling;
store
count
as
of
1/18/2011
220 J.Crew
stores
9 crewcuts
stores
Collection
Wedding
Mens
20 Madewell
stores
85 factory outlet
stores, including
crewcuts
factory stores
www.jcrew.com
J.Crew
catalogs
www.jcrew.com/ kids-
clothing.jsp
crewcuts
catalogs
www.madewell.com
www.jcrew.com/
factory
Retail stores:
70% of revenue
Direct:
28% of revenue
2010E Revenue: $1.7 billion
J.CREW GROUP, INC.
BUSINESS OVERVIEW |
5
TRANSACTION SUMMARY
On
November
23,
2010,
J.Crew
Group,
Inc.
(J.Crew
or
the
Company)
entered
into
a
merger
agreement
with affiliates of TPG Capital (TPG) and Leonard Green Partners
(LGP) J.Crew
is being purchased by TPG and LGP for a price of $43.50 per share or approximately
$3.0 billion Transaction will be funded using (i) equity contributions from
TPG/LGP totaling approximately $1.2 billion, (ii) rollover financing
totaling approximately $100 million, (iii) debt financing of approximately $1.6 billion and (iv)
cash of the company totaling approximately $312 million
|
6
$43.50 PER SHARE IN CASH: A COMPELLING OFFER
Attractive premium
29.6% to prior months average stock price
19.2% to stock price prior to announcement
Deal announced simultaneously with revision of Q4 guidance to $0.30-$0.35
versus consensus estimate of $0.50; Company reaffirmed guidance on January
20, 2011 Attractive multiple
9.6x 2010E EBITDA based on the November 5 year projections
8.6x
LTM
EBITDA
(11/1/2009
to
10/30/2010)
higher
than
the
median
of
relevant
transactions
and higher
than the recent specialty apparel transactions
21.0x 2010E P/E multiple based on the November 5 year projections
Within range of fairness based on various valuation methodologies
Trading comparables
Precedent transactions
Discounted cash flow
Source:
J.Crew
Definitive
Proxy
statement,
filed
with
the
SEC
on
1/25/2011
Opinion
of
Perella
Weinberg,
Financial
Advisor
to
the
Special
Committee
Notes:
Premium of 19.2% based on closing price on 11/19 reference date of $36.49; closing
price on 11/22 was $37.65 |
7
SPECIAL COMMITTEE PROCESS
Board of Directors resolved that it would not approve a sale of the Company without
Special Committee recommendation
Special Committee of four independent directors empowered to consider and recommend
that the Board take action with respect to strategic alternatives, including
a sale of the Company Assisted by experienced independent advisors
Legal
advisor
to
Special
Committee
Cravath,
Swaine
&
Moore
LLP
Financial
advisor
to
Special
Committee
Perella
Weinberg
Partners
Provided opinion to the Special Committee upon which the Board was entitled to rely
that the transaction consideration was fair from a financial point of view
to the Companys unaffiliated stockholders The Special Committee met 18
times between its formation and announcement of the transaction and
evaluated a range of alternatives including:
Status quo
continuing as a stand alone public company
Conducting a stock repurchase, implementing a dividend or undertaking a
recapitalization
Sale of the Company, either to TPG/LGP or pursuant to an alternative sale
process The Board of Directors, assisted by outside counsel Cleary Gottlieb
Steen & Hamilton LLP, acted on the recommendation of the Special
Committee |
8
KEY SPECIAL COMMITTEE ACTIONS
While there were preliminary discussions between management and TPG, the Special
Committee took complete control
of
the
process
when
it
was
formed
and
never
relinquished
complete
control
At
the
direction
of
the
Special
Committee,
Cravath
sent
a
communication
to
TPG
on
October
21
freezing
the
process
and prohibiting communications with management without Special Committee permission
Same communication sent to Mr. Drexler and other members of management
Mr. Drexler did not attend any Special Committee meetings
Special Committee comfortable Just Saying No to TPG/LGP in furtherance of their
fiduciary duties
On October 29, Special Committee sought and received assurance from Mr. Drexler
that he would remain with the Company if the Special Committee determined
that the Company should remain stand-alone
On November 1, TPG/LGP put in an offer of $41.00 per share; in response, the
Special Committee called off the entire process; the Special Committee was
comfortable with this outcome, which resulted in TPG coming back with a
significantly higher $45.00 offer
Price and terms renegotiation
Original price was agreed at $45.50 per share after rigorous negotiation
TPG
made
revised
$43.00
per
share
proposal
at
the
end
of
process
(TPG
reduced
the
price
due
to
weaker
updated
financials)
Special Committee considered: post-Christmas auction process; share repurchase
/ dividend / recapitalization; and immediate transaction with a meaningful
go-shop
Special Committee considered declining recent and anticipated financial performance
and effect on share price and on the various alternatives
Special Committee negotiated higher price and lower break-up fee, longer
go-shop and higher reverse termination fee
|
9
SALE AND OTHER ALTERNATIVES
Following its review of strategic alternatives, the Special Committee determined
that a sale of the Company, as opposed to remaining stand-alone or
undertaking a different strategic alternative, represents the best value for
the Company's stockholders
Sale
delivers
significant
premium
to
J.Crew
shareholders
at
an
attractive
multiple
Declining recent and anticipated future financial performance
Execution risk associated with implementation of strategic plan
Conducting a stock repurchase, implementing a dividend or effecting a
recapitalization would result in a lower
implied
stock
price
and
value
to
stockholders
than
a
sale,
as
well
as
deferred
realization
of
value
and
greater execution risk
Pursuing a sale prior to the Company's third quarter earnings release and updated
guidance was in the best interests of stockholders
Fourth quarter outlook and full year performance expected to be materially lower
than "Street" consensus
Shifted the risk of the Company underperforming during the holiday season to the
acquiror
Pursuing
a
transaction
with
TPG
and
LGP,
with
a
meaningful
post-signing
go-shop
process,
was
the
best
way to accomplish a sale on this timetable |
10
RECOMMENDATION OF THE SPECIAL COMMITTEE
Significant premium above stocks trading levels over the months leading up to
announcement and attractive multiples
More
favorable
to
the
Compnays
stockholders
than
the
status
quo
or
other
strategic
alternatives
available
Special Committee's understanding of the business, operations and management of the
Company, including the Company's prospects as a stand-alone
business
The Company's recent financial performance and management's reduced expectations
for the Company's short and long term future performance
Timing and execution risk associated with achieving $43.50 per share under
alternatives to the sale to TPG/LGP
Limited execution risk
Committed financing with no financing condition
Standard regulatory approvals process
High reverse termination fee and right to specific performance
54 day go-shop
(subsequently extended to 85 days), low break-up fees and full cooperation of
management The Special Committee unanimously determined that the TPG/LGP
offer was advisable and fair to and in the best interests of the Company
and its unaffiliated stockholders |
11
MEANINGFUL
POST-SIGNING
GO-SHOP
PROCESS
54 day initial go-shop
period through January 15, 2011, with low termination fee (approximately 0.9% of
the transaction equity value during go-shop)
At the direction of and under the supervision of the Special Committee, Perella
Weinberg contacted a total of 58 parties through January 15
39 strategic parties and 19 financial parties
58 parties contacted included the two parties that had previously expressed
interest in the Company
Three parties signed confidentiality agreements and were provided access to due
diligence and, at the request of one party, a management meeting
The merger agreement was subsequently amended to provide even more favorable terms
for interested third parties
Extension
of
the
go-shop
period
for
an
additional
31
days
through
February
15,
2011
(85
day
total
go-shop
period)
Reduced termination fee to $20 million through the shareholder vote (approximately
0.66% of the transaction equity value)
Termination
fee
previously
was
$27
million
during
go-shop
period
and
$54
million
during
no-shop
period
Elimination in certain circumstances of the match rights of affiliates of TPG and
LGP
Reimbursement of expenses up to $3 million for a third party bidder in certain
circumstances
Agreement by Mr. Drexler to a 2 year non-compete in the event a third party
acquires the Company and offers Mr. Drexler comparable employment terms but
he declines to continue his employment Special Committee met 9 times since
November 23 |
12
CALENDAR OF CERTAIN EVENTS
TPG/LGP received updated financials with lower fourth quarter guidance and
long-term projections
November 16
TPG/LGP and the Special Committee agreed on an offer price of $45.50
November 14
TPG/LGP
submitted
initial
proposal
of
$41.00
per
share
which
the
Special
Committee rejected
November 1
Board appointed and mandated the Special Committee; Special Committee
appointed
Cravath,
Swaine
&
Moore
as
its
legal
counsel
and
Perella
Weinberg
Partners as its financial advisor (October 20/21)
October 15
21
Millard
Drexler
apprised
the
Board
members
of
TPGs
potential
interest
October 7
11
Following preliminary discussions between TPG and management in
September, TPG expressed a bona fide interest in pursuing a transaction
October 5 |
13
CALENDAR OF CERTAIN EVENTS (CONTD)
Merger agreement executed and announced; Company announced third
quarter
earnings
and
revised
guidance
that
is
lower
than
current
"Street"
consensus
November 23
TPG/ LGP informed Special Committee that they no longer wished to pursue a
transaction
Representative of Special Committee called TPG to better understand
reasons for their unwillingness to pursue a transaction
TPG/LGP communicated a $43.00/share offer
Special Committee deliberated and countered with $44.00/share, conditioned
on certain other key transaction terms, including terms of
go-shop After
further
negotiations,
TPG/LGP
and
Special
Committee
agreed
on
$43.50
and other key transaction terms
November 22
End
of
extended
go-shop
period
February 15 |
14
SELL SIDE ANALYST REACTIONS HAVE BEEN POSITIVE
We believe this is a great deal for J. Crew shareholders, since the estimated
takeover value represents a 28%
premium
to
our
previous
$34
fair
value
estimate.
Morningstar
Equity
Research,
11/23/2010
While we would view the current potential offer as fair, we believe there is
the potential for other bidders to enter the fray.
Brean
Murray Carret
& Co., 11/23/2010
We commend management on effecting this deal and although we expect pressure
on the fundamentals, we
expect
shares
to
trade
rangebound
around
the
deal
price.
Janny
Capital
Markets,
11/23/2010
We believe that the TPG Capital/Leonard Green proposal to acquire JCG at
$43.50 per share fairly values the
shareholders
of
JCG,
and
we
are
using
a
February
28,
2011,
closing
estimate.
MKM
Partners,
11/23/2010
If
this
deal
had
not
been
announced,
we
believe
JCG
shares
would
have
been
under
pressure
given
its
F4Q10
forecast
being
well
below
consensus
expectations
Raymond
James,
11/24/2010
We
believe
it
is
unlikely
that
the
company
will
receive
a
higher
offer
during
this
time
since
(1)
$43.50
per
share is already a premium to other recent deals such as GYMB (9x our FY10
EV/EBITDA estimate for JCG versus
8x
consensus
estimate
for
GYMB),
(2)
its
comp
trends
have
weakened
further,
and
(3)
it
did
not
receive
any
other
bids
during
the
initial
go-shop
period
-
Raymond
James,
1/20/2011 |
15
OTHER NOTABLE COMMENTARY
At $43.50 a share, the J. Crew buyout carried a 16 percent premium to its
stock price the day before the deal
Some have balked that the offer is
still well below J. Crews 52-week high of $50.96 in April. But the
price
looks
pretty
good,
considering
that
the
retailer
whose
earnings
have
taken
a
hit
of
late
was
trading
in
the
$30s
before
DealBook
broke
news
of
the
talks
on
Nov.
22
NY
Times
(DealBook),
11/30/2010
The
price
represents
a
premium
of
16%
to
J.Crews
Tuesday
closing
price
before
the
announcement
and
29% premium to last months average price. This is nearly 3% higher than our
price estimate for J.Crews stock
of
$42.35.
[A]
deal
at
$1
higher
is
a
good
fit.
Forbes,
12/2/2010
The deal may ultimately be right for shareholders. After all, the buyers are
paying a 23 percent premium, and
the
company's
earnings
have
been
lousy
of
late.
NY
Times,
1/4/2011
Orrico, whose fund owns J. Crew stock, said the board has taken steps to
protect investors. These include negotiating the right to seek other offers
and a lower-than-average break-up fee that would make ending the
deal
less
expensive.
He
views
the
$43.50-a-share
bid
by
the
TPG
group
as
fairly
priced.
Bloomberg,
1/13/2011
I dont
expect
competing
bids,
given
that
the
offer
is
full
and
the
valuation
is
more
than
fair,
said
Randal
Konik, managing director of New York-based Jefferies & Co. He recommends
holding the stock. Its interesting that there are all these
lawsuits, but to me the stock would be in the 20s right now if there was no
deal.
Bloomberg, 1/18/2011 |
BUSINESS RESULTS, OUTLOOK AND VALUATION ANALYSIS |
17
Q4 GUIDANCE
Q4 FY 2010 GUIDANCE
Q4 CONSENSUS EPS EVOLUTION
Q4 guidance of $0.30-$0.35 per share (vs. $0.50
Consensus and $0.61 in Q4 2009)
Comparable store sales in the negative mid single
digits
Direct sales growth in the positive low double digits
Gross margin decrease of approximately 600 to 700
basis points
Inventory increase mid-teens (~10% excluding a
partial pull forward of Spring deliveries)
$0.50
$0.30
$0.40
$0.50
$0.60
$0.70
Jan
Mar
May
Jul
Sep
Nov
Guidance:
$0.30 -
$0.35
Q4 2009:
$0.61
Consensus |
18
SELECT RETAILERS NEXT QUARTER GUIDANCE AND STOCK PRICE REACTION
Note:
(1) Variance based on mid-point of guidance range
(1)
(1)
COMPANY
NEXT QUARTER GUIDANCE
VS LY
NEXT QUARTER GUIDANCE
VS CONSENSUS
1-DAY STOCK PRICE REACTION
(4)%
($0.94
$0.96 vs. $0.99)
(8)%
($0.94
$0.96 vs. $1.03)
(14)%
(24)%
($0.90
$1.20 vs. $1.38)
(18)%
($0.90
$1.20 vs. $1.28)
(6)%
(1)%
($1.71
$1.91 vs. $1.82)
(12)%
($1.71
$1.91 vs. $2.05)
(15)%
(1)%
($0.48
$0.53 vs. $0.51)
(6)%
($0.48
$0.53 vs. $0.54)
(1)%
Median
(2.6)%
(10.0)%
(9.9)%
11%
($0.41
$0.43 vs. $0.38)
(7)%
($0.41
$0.43 vs. $0.45)
(4)%
44%
($0.32
$0.40 vs. $0.25)
(12)%
($0.32
$0.40 vs. $0.41)
(9)%
5.2%
($0.88
$0.93 vs. $0.86)
(2)%
($0.88
$0.93 vs. $0.92)
(10)%
6%
($1.36
$1.42 vs. $1.31)
(1)%
($1.36
$1.42 vs. $1.40)
(5)%
Total Median
2.1%
(7.2)%
(7.2)%
(46)%
($0.30
$0.35 vs. $0.61)
(35)%
($0.30
$0.35 vs. $0.50)
N/A |
19
J.CREW STAND-ALONE SHARE PRICE CONSIDERATIONS
SHARE PRICE PERFORMANCE SINCE 8/1/2010
ILLUSTRATIVE
SHARE
PRICE
NO
TRANSACTION
Source:
FactSet
as of 2/7/2011, 11/17/2010 Company Management projections, I/B/E/S
Notes:
Selected Peers represented by equal weighted index of Abercrombie & Fitch,
Aeropostale, American Eagle, Ann Taylor, Bebe, Carters, Chicos, Childrens Place, Coach, Coldwater Creek, The Dress Barn, The
Gap, Guess?, Limited Brands, New York & Company, Polo Ralph Lauren, Talbots,
Under Armour, and Urban Outfitters. Peers indexed to Company share price of $36.49, the closing price on 11/19/2010
(1) XRT represents the S&P Retail Index
(2) Reference Price as of 11/19/2010
(3) Represents average Company P/E multiple since Q2 earnings announcement and
guidance on August 26, 2010 $25.00
$30.00
$35.00
$40.00
$45.00
$50.00
Aug-10
Sep-10
Nov-10
Dec-10
Feb-11
XRT
5%
Peers
3%
J. Crew
19%
(1)
Reference Date: 11/19/2010
(2)
5%-8%
Decline
(3)
Return since 11/19
Reference Price
$36.49
Divide by: IBES Consensus FY2010E EPS
(11/19/2010)
$2.25
Reference Multiple
16.2x
Low
High
EPS based on revised guidance (MGMT's
FY2010E EPS)
$2.08
$2.13
Reference
Average Since 8/26
Low
High
Low
High
Multiple Applied
16.2x
16.2x
14.4x
14.4x
Implied Share Price
$33.73
$34.54
$29.89
$30.61
Implied Deal Premium Assuming $43.50 Offer
29.0%
25.9%
45.5%
42.1% |
20
Source:
Schedule 13E-3, Exhibit (c)(2) filed with SEC on 12/6/2010
Notes:
(1)
Represent Q3 FY2010 ending debt and cash balances
(2)
Based on actual reported EBITDA of $315.9MM, adjusted for one-time items
(benefit related to forfeited share-based awards, lease termination, and severance costs)
PERELLA WEINBERG ANALYSIS -
TRANSACTION OVERVIEW
(1)
(1)
US$ IN MM, EXCEPT MULTIPLES AND PER SHARE AMOUNTS
(2)
11/19/10 Close
Transaction Price
Share Price
$36.49
$43.50
Premium To:
Metric
11/19/10 Close
$36.49
0.0%
19.2%
1 Month Average
33.57
8.7%
29.6%
3 Month Average
33.66
8.4%
29.2%
Fully Diluted Shares Outstanding
68.4
69.1
Equity Value
$2,495
$3,005
Add: Debt
0
0
Less: Cash
(312)
(312)
Enterprise Value
$2,184
$2,693
EV/LTM EBITDA (Q3 2010)
$314
7.0x
8.6x
IBES CONSENSUS
EV/EBITDA
FY 2010E
$303
7.2x
8.9x
FY 2011E
317
6.9
8.5
Price/Earnings
FY 2010E
$2.25
16.2x
19.3x
FY 2011E
2.45
14.9
17.8
NOVEMBER 5 YEAR PROJECTIONS
EV/EBITDA
FY 2010E
$281
7.8x
9.6x
FY 2011E
326
6.7
8.3
Price/Earnings
FY 2010E
$2.07
17.6x
21.0x
FY 2011E
2.43
15.0
17.9 |
21
PERELLA WEINBERG ANALYSIS -
VALUATION SUMMARY: EQUITY VALUE PER SHARE
$40.00
$39.00
$38.00
$32.00
$30.00
$30.06
$52.00
$47.00
$50.00
$41.00
$50.00
$50.96
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
DCF
Precedents
Premia Paid
Comps
Equity Research Price Targets
52 Week Range
52 Week Range
Equity Research Price Targets
Public Companies
6.5x
8.0x
2010E
EBITDA,
16.0x
20.0x
2010E
EPS
6.0x
7.5x
2011E
EBITDA,
15.0x
17.0x
2011E
EPS
Relevant Transactions
7.5x
9.5x LTM EBITDA
Discounted Cash Flow Analysis
11% -
15% WACC, 6.0x
7.5x Exit Multiple
11/19/2010 Price: $36.49
Premiums Paid
1-Day
Premium:
11%
-
36%
1-Week
Premium:
18%
-
39%
1-Month
Premium:
22%
-
34%
Transaction Price: $43.50
Source:
Schedule 13E-3, Exhibit (c)(2) filed with SEC on 12/6/2010
$35.00
$43.00
7.5x
9.5x 2010E EBITDA |
22
PERELLA
WEINBERG
ANALYSIS
-
RELEVANT
TRANSACTIONS
Source:
Schedule 13E-3, Exhibit (c)(2) filed with SEC on 12/6/2010
Note:
(1) Based on actual reported EBITDA of $315.9MM, adjusted for one-time items
(benefit related to forfeited share-based awards, lease termination benefit, and severance costs)
(2) Defined as Transaction Enterprise Value. Figures shown in millions of US
dollars EV / LTM EBITDA
Specialty Apparel
Branded
Private Equity Buyer
Strategic Buyer
(2)
IMPLIED
TRANSACTION
MULTIPLE:
9.6x
2010E
EBITDA
(November
5
year
projections)
8.6x LTM EBITDA
Acquiror
Apax
Apollo
Lee Equity
Advent
V. Heusen
Bain
Jones
Federated
Consortium
Consortium
Apollo
Bain
Consortium
Consortium
Istithmar
Date Announced
12/05
3/07
7/07
8/09
3/10
10/10
11/04
2/05
3/05
5/05
11/05
1/06
6/06
7/06
6/07
Transaction Value
$1,547
$2,581
$259
$312
$3,136
$1,761
$400
$17,260
$6,213
$4,981
$1,305
$1,958
$5,604
$1,819
$942
6.6x
8.9x
9.4x
10.2x
12.2x
14.1x
8.7x
8.8x
8.2x
7.2x
7.9x
7.9x
7.8x
7.9x
8.1x
Branded Median: 8.9x
Specialty Apparel Median: 7.9x
Overall Median: 8.2x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
Tommy
Hilfiger
Claire's
Stores
Deb Shops
Charlotte
Russe
Tommy
Hilfiger
Gymboree
Barney's
May
Toys R Us
Neiman
Marcus
Linens n
Things
Burlington
Coat
Factory
Michaels
Stores
Petco
Barney's |
23
PERELLA
WEINBERG
ANALYSIS
-
PUBLIC
COMPANIES
EV
/
FY2010E
EBITDA
Source:
Schedule 13E-3, Exhibit (c)(2) filed with SEC on 12/6/2010
Selected Peers
Other Peers
Company
Implied Transaction Multiple: 9.6x November 5 year projections
8.9x IBES Consensus
4.6x
5.5x
8.3x
10.6x
4.9x
5.5x
7.8x
8.2x
10.4x
16.8x
5.8x
6.0x
7.8x
7.2x
4.8x
6.9x
7.6x
6.1x
6.6x
Selected Peers Median: 6.9x
Other Peers Median: 6.6x
0.0x
5.0x
10.0x
15.0x
20.0x
Current Plan
IBES
Aeropostale
Chico's
A&F
Urban
Outfitters
The Gap
Dress Barn
American
Eagle
Talbots
Children's
Place
Ann Taylor
Coldwater
Creek
Carter's
Coach
Limited
Brands
Guess?
Polo
Bebe
Offer: 9.6x
Offer: 8.9x |
24
Premiums Paid (2nd Quartile High and 3rd Quartile Low)
Implied Share Price
2nd Quartile High
$49.72
$47.08
$42.52
Median
44.25
41.05
39.89
3rd Quartile Low
40.55
40.07
38.48
11.1%
18.2%
21.5%
36.2%
38.8%
34.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
1 Day Prior
1 Week Prior
1 Month Prior
PERELLA
WEINBERG
ANALYSIS
-
PREMIUMS
PAID
Source:
Schedule 13E-3, Exhibit (c) (2) filed with SEC on 12/6/10
Note:
Analysis includes 100% cash transactions with U.S. targets from 2005 to present
between $2.0Bn and $4.0Bn 19.2%
28.3%
37.3%
25.9%
21.0%
21.3%
Median of Precedents
Current Offer Premia |
25
PERELLA
WEINBERG
ANALYSIS
-
EQUITY
RESEARCH
PRICE
TARGETS
Source:
Schedule 13E-3, Exhibit (c)(2) filed with SEC on 12/6/2010
Price Target Summary
High
Low
Median
Overall Estimates
$50.00
$30.00
$35.00
Oct. and Nov. Estimates
$44.00
$30.00
$34.00
Recommendation Summary
Buy
Sell
Hold
Overall Analysts
33%
5%
62%
Oct. and Nov. Analysts
13%
13%
75%
8/27
8/27
11/15
8/27
8/27
8/26
7/15
8/26
8/27
10/25
10/5
11/9
10/21
11/11
8/26
10/21
11/18
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Sell
Upside to Current
37%
34%
21%
15%
10%
10%
1%
(4%)
(4%)
(4%)
(4%)
(7%)
(7%)
(10%)
(15%)
(15%)
(18%)
$50.00
$49.00
$44.00
$35.00
$35.00
$31.00
$30.00
$34.00
$33.00
$31.00
$35.00
$37.00
$40.00
$42.00
$40.00
$35.00
$34.00
Reference Price: $36.49
$25.00
$35.00
$45.00
$55.00
Oppenheimer
Baird
Atlantic
Equities
B. Murray
Wedbush
Weeden
JP Morgan
UBS
Jefferies
MKM
BOA
Nomura
P. Jaffray
Goldman
BMO
Janney
Morgan
Stanley |
26
CONCLUSION
Significant premium above stocks trading levels over the months leading up to
announcement and attractive multiple More favorable to the Companys
stockholders than the status quo or other strategic alternatives available
The Companys recent financial performance and managements reduced
expectations for the Companys short and long term future performance
Limited execution risk
Meaningful post signing Go-Shop
period with low break-up fees and full cooperation of management
$43.50 per share in cash is a compelling offer and in the best interests of the
Company and its unaffiliated stockholders based on
|
APPENDIX |
28
MEMBERS OF THE SPECIAL COMMITTEE
Mary Ann Casati -
Ms. Casati has been a director since 2006. Ms. Casati is a founding partner of
Circle Financial Group LLC, a private wealth management membership practice,
and has served as such since 2003. Prior to that, Ms. Casati was a
partner
and
managing
director
of
The
Goldman
Sachs
Group,
Inc.
where
she
was
employed
for
twenty
years
and
developed and ran their Global Retailing Industry Investment Banking
business. David
House
-
Mr.
House
has
been
a
director
since
2007.
Mr.
House
is
Chairman
of
Serenoa
LLC,
a
family owned
investment business. Prior to that, Mr. House was Group President of the Global
Network and Establishment Services and Travelers Cheques
and Prepaid Services businesses at American Express Company, a diversified global
travel and financial services company, from 2000 until 2006 and served on
its Global leadership Team during this period. He joined American
Express
in
1993
and
held
various
senior
positions
there
prior
to
assuming
his
global
role
as
a
Group President.
Mr. House also serves on the Board of Directors of Modern Bank.
Stephen
Squeri
-
Mr.
Squeri
has
been
a
director
since
September
2010.
Mr.
Squeri
has
been
Group
President of
Global
Services
and
Chief
Information
Officer
at
American
Express
Company
since
2009.
Mr.
Squeri
joined
American
Express in 1985 and has held various senior positions since then, including
executive vice president and chief information officer from 2005 to 2009,
president of the Global Commercial Card division from 2002 to 2005 and president
of
Establishment
Services
Canada
and
the
United
States
from
2000
to
2001.
Prior
to
joining
American
Express,
Mr. Squeri
was a management consultant at Arthur Andersen and Company from 1981 to 1985.
Josh Weston -
Mr. Weston has been a director since 1998. Mr. Weston also served as Honorary
Chairman of the Board of Directors of Automatic Data Processing, a computing
services business, from 1998 to 2004. Mr. Weston was Chairman of the Board
of Directors of Automatic Data Processing from 1996 until 1998, and Chairman
and Chief Executive Officer for more than five years prior thereto. Mr.
Weston served on the Board of Directors and Compensation Committee of Gentiva
Health Services, Inc. and its predecessor company, the Olsten Corp., for over ten
years until May 2009. He also previously served
on
the
Board
of
Directors
of
Russ
Berrie
and
Company,
Inc.
from
1999
until
2007. |