ANN Surges on Non-disclosure Pact with Golden Gate
Shares of ANN Inc. (ANN) soared nearly 8.2% during the afterhours trading session following the company’s announcement of signing a non-disclosure agreement with the private equity investor Golden Gate Capital. As per the agreement, the companies will carry out discussions regarding options which will boost ANN’s shareholder value.
Holding a stake of 9.5%, Golden Gate is the largest shareholder of this women’s specialty retailer. In Mar 2014, this private equity firm stated that it has full faith in the retailer’s management and intends to work together to enhance shareholder wealth.
ANN, which is an American specialty retailer of women’s apparel, foot wear and accessories, is the parent company and owner of Ann Taylor and its subsidiary LOFT, women’s specialty retailer. Ann Taylor and LOFT offer an array of merchandise from business formal to casual dresses, tops, separates and other products.
Since Aug 2014, the retailer is being pressured by activist investors Engine Capital LP and Red Alder LLC for sale of the Ann Taylor business. These two partners own less than 1% of the company’s outstanding shares, collectively. Both partners urged the sale of Ann Taylor and all of its subsidiaries, explaining that they put their money into ANN Inc. in the first place because they felt the stock price was heavily undervalued. The letter to ANN Inc. also outlined that there are good opportunities for the company to increase shareholder value substantially.
Engine Capital LP and Red Alder LLC, both revealed their intent to increase shareholder value, by exploring all strategies, including the sale of ANN Inc. The intrinsic value of ANN is much more than the stock price, they said. Both of them indicated their price target of about $50 per share to $55 per share for ANN, if the company’s board of directors does execute a sale of the company to a third party acquirer.
Red Alder LLC and Engine Capital LP also stated that it would be in the company’s interests to expand abroad, perhaps through strategic pairing with a large international retailer that could significantly expand its market throughout the globe at a fast pace.
Engine and Red Alder also went on to claim that investors would probably be on their side, especially given the recent uncertain future of retail and narrowing gross margins, that were highlighted during ANN’s Q2 conference call.
We believe that the recent development has raised some speculations regarding ANN’s possible acquisition by Golden Gate as the private equity firm has a history of successful investments in retail, including Eddie Bauer Holdings Inc., California Pizza Kitchen Inc. and Zale Corp.
Although, ANN might appear to be a lucrative investment option at the moment as the stock is highly undervalued, we suggest investors to stay cautious as its future still remains uncertain. Therefore, ANN currently carries a Zacks Rank #5 (strong Sell).
Other Stocks to Consider
Better-ranked stocks to consider would be Citi Trends, Inc. (CTRN), Christopher & Banks Corporation (CBK) and DSW Inc. (DSW), all carrying a Zacks Rank #1 (Strong Buy).
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Read the Full Research Report on ANN
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