Is Ascena Positioned for Success with the $2B ANN Buyout?

Ascena Retail Group Inc. ASNA has successfully closed its previously announced deal to buy ANN INC. in a transaction combining cash and stock. The ANN Taylor parent, which has ceased trading on the NYSE effective Aug 21, will now operate as a wholly owned subsidiary of Ascena.

Under the transaction, shareholders of ANN received 0.68 of one Ascena share and $37.34 in cash for each share of ANN. This deal brings total enterprise value of ANN to $2 billion. Acsena has financed the deal through its previously entered $1.8 billion senior secured term loan.

The acquisition brings together some of the most popular women's apparel brands serving customers of all ages, sizes and demographics. This places Ascena among North America's leading apparel retailers with one of the most diversified portfolios and trailing twelve month sales of $7.4 billion. The combined company now has a fleet of over 4,900 stores and more than 70,000 associates.

Further, the combination of two strong companies with complementary businesses lifts Ascena to the position of the third largest specialty apparel retailer and the largest US-based retailer focused exclusively on female consumers.

Following the acquisition, Ascena intends to rapidly integrate ANN's Ann Taylor, LOFT and Lou & Grey brands with its state-of-the-art distribution and fulfillment centers and shared services facilities in order to drive immense shareholder value. The deal is expected to generate annual run rate synergies of about $150 million through the next three years.

Moreover, the company expects the acquisition to be accretive to earnings per share ("EPS") within the first year from the date of closing, excluding transaction and integration charges. Thereafter, the buyout is expected to augment Ascena's EPS by over 20%, apart from generating significant cash flows and enabling the adoption of a balanced capital allocation approach.

Ascena is now a leading apparel retail chain that sells clothing, shoes, and accessories for missy and plus-size women through its Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, maurices, dressbarn, and Catherines brands. It also offers merchandise for tween girls under the Justice brand. The company sells its products through its 4,900 stores across United States, Canada and Puerto Rico.   

Zacks Rank

Ascena currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry are Aeropostale Inc. ARO, American Eagle Outfitters Inc. AEO and Citi Trends Inc. CTRN, each with a Zacks Rank #2 (Buy).

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