How To Acquire A Company Stealthily: Sycamore Sneaks Up On Express

Shares of Express EXPR traded up as much as 23.62 percent on news of the Sycamore stake and potential acquisition on Friday. Analysts were eager to comment on the news and possibilities for the retailer.

Express Confirms Potential Acquisition by Shareholder

In a 13-D filing on June 12, 2014, Express reported that 1981 Investments "had invested approximately $106.2 million (inclusive of brokerage commissions) to purchase the 8,300,000 shares of Common Stock it owns." This investment stake makes up 9.9 percent of the outstanding shares as of May 31,2014.

1981 Investments purchased 77,370 to 3,574,448 shares of Express common stock between May 29 and June 12. The company had purchased 8,000,000 shares by June 5.

Sycamore Partners, which indirectly funds 1981 Investments, sent a letter to Express's Board of Directors to disclose its interest to perform due diligence on the company in order to submit a proposal to acquire the remaining 90.1 percent of shares.

Sycamore's Managing Director, Stefan Kaluzny, wrote, "As discussed, investment funds managed by Sycamore Partners have accumulated approximately 9.9 percent of the outstanding common stock of Express, Inc. (“Express” or the “Company”) through open market purchases. These purchases are a clear sign of our confidence in the Express management team and brand. They are also a demonstration of our interest in acquiring the Company.

"With the cooperation of the Company's Board of Directors, we would like to perform confirmatory due diligence to determine a definitive valuation of the Company and submit a binding, fully financed proposal to acquire all of the remaining common stock of Express not owned by Sycamore Partners."

Following the letter, Express confirmed that it received the letter in a press release on Thursday. The company announced that Special Committee has been created to determine the best course of action for all stockholders. Express hired Perella Weinberg Partners LP and Sullivan & Cromwell LLP to advise the Committee and company.

The release stated, "The Company also has adopted a Stockholder Rights Plan (the "Rights Plan"), which is intended to ensure all stockholders realize the long-term value of their investment in the Company and protect them from unfair or coercive takeover attempts.

"The Rights Plan is intended to provide the Board with sufficient time to consider any and all alternatives to an offer and does not prevent the Board from considering or accepting an offer, if the Board believes such action is fair, advisable and in the best interests of its stockholders."

Analysts Comment on Sycamore's Bold Advances

Mizuho analyst Betty Chen commented that a possible sale would "provide the most immediate return for shareholders." She believes that an acquisition proposal will "submit a fully financed binding acquisition proposal within 30 days after being provided access by the company."

Roxanne Meyer from UBS emphasized Sycamore's interest in the retail space. UBS noted that Sycamore has invested in "several retail brands incl Hot Topic, Talbots, Aeropostale, and Coldwater Creek."

Meyer remarked on the evolution of the company and opportunity, writing "the fleet is now mature, e-commerce has ramped, the landscape is more competitive in EXPR' key knit tops category, an int'l strategy has begun but is still not proven, an outlet strategy has started, and there have been some executive level changes."

Stock Action

Shares of Express jumped over 21 percent to $16.50 in after-hours trading on Thursday following the news. Shares opened at $16.50 for Friday's trading and closed at $16.45, up 21.40 percent from Thursday's close.

In Monday's session, shares up 0.67 percent from Friday's close to $16.56.