These brands might not be on the cutting edge of fashion or in areas of growth, but the combination could be one that helps both companies. Lane Bryant is paying $2 billion for Ann Taylor and Loft. And much of the media seems to find the deal a combination of boring and unexciting.
The Wall Street Journal story by Suzanne Kapner called the deal one being purposed by a little-know player in an industry of personalities:
Retailers always talk about their female customer as an idealized “her.” But Ascena Retail Group Inc. has built an empire selling clothing to real American women—those on a budget, and who might not wear size eight.
The owner of Dressbarn and Lane Bryant broadened its reach Monday with a $2 billion deal for the parent of the Ann Taylor and Loft chains. The acquisition of Ann Inc. will add two storied names in women’s apparel to a company that has made much of its money selling plus-size clothing to shoppers who often are middle-aged.
Ascena is a little-known player in an industry dominated by personalities like J. Crew’s Mickey Drexler and L Brand’s Les Wexner, who run glitzy brands and made their names on their skills as merchants. Ascena Chief Executive David Jaffe is in many ways the opposite, a low-key operator with a strong financial background.
The 59-year-old CEO was born into a retail family—his father worked at Macy’s, and his mother worked at Gimbels—but went into finance with a degree from Wharton and an M.B.A. from Stanford. He then spent about a decade on Wall Street as a portfolio manager at Merrill Lynch and then as a general partner at private-equity firm Chemical Venture Partners before joining the family business in 1992.
The New York Times story by Hiroko Tabuchi pointed out that neither of the companies is in a growth market:
Ascena fashion labels like Dressbarn or Lane Bryant are not known as a favorite among hip urban millennials, the generation influencing the future of shopping. Nor does the retailer market athletic wear, perhaps the only fast-growing category in women’s clothing.
Instead, Ascena has accumulated brands over the years that cater mainly to suburban or older shoppers, a strategy that has kept it a wallflower player in the flashy world of retail.
But in a deal announced on Monday, Ascena said it would buy the parent company of Ann Taylor and Loft for $2.16 billion, in a move that catapults it into the ranks of the biggest clothing retailers in the United States. Combined, the two companies posted sales last year of over $7 billion, and run almost 5,000 stores between them.
The jury is out, however, on how far those brands can position Ascena for growth. Though well known, Ann Taylor and Loft are hardly dynamic brands in sectors poised for takeoff.
John Kell’s story for Time had these details about the terms of the deal:
The cash-and-stock deal values Ann at $47 per share, with shareholders set to receive $37.34 in cash for each share and the rest in Ascena stock. The deal implies a $47 per share price based on Ascena’s closing price on Friday. After the acquisition, which is expected to close in the second half of this year, Ann shareholders will own about 16% of the combined company.
The Ann acquisition comes at an interesting time for the women’s apparel business. Many players in the sector of retail that caters to older women have found themselves out of fashion with their target audience, and millennials have shunned the sector altogether.
The Ascena offer is a 21% premium to Ann’s closing price on Friday and above any level the stock has ever traded at. The board of directors at both companies have approved the acquisition.
“With the addition of the Ann Taylor and LOFT brands, Ascena will become one of North America’s largest and most diversified specialty apparel retailers, with a tremendous set of opportunities to continue to expand its leadership position in the women’s apparel market,” said Ascena President and CEO David Jaffe in a statement.
The CNN Money story by Paul R. La Monica highlighted some of the struggles that retailers are feeling right now:
Competition is fierce throughout retail. But the merger is also a sign of how tough it is in the retail business right now.
Both Ascena and ANN have reported sluggish sales growth lately. Getting bigger could help the two companies combat Amazon (AMZN, Tech30) online as well as larger general merchandise retail chains like Wal-Mart (WMT) and Target (TGT). Then there are the trendier chains like Forever 21 and Zara.
There have been several other notable mergers in retail recently. Staples (SPLS) agreed to buy Office Depot (ODP) earlier this year. Family Dollar (FDO) is acquiring Dollar Tree (DLTR).
Expect the buyout trend to continue, especially if consumer spending remains as sluggish as it was in the first quarter.
Macy’s (M) and Kohl’s (KSS) both reported disappointing sales last week.
And if those weak sales lead to more combinations, it’s fewer choices ultimately for consumers at this mid-price point. Retailers are struggling to continue to show profits and mergers could be a way to achieve some cost savings. And Ann Taylor could bring some star power to Lane Bryant, something that could also help boost sales.