Chico's FAS Acquisition: Why Sycamore's Strong Track Record And Sourcing Capabilities Make It The Ideal Suitor, Says Analyst

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Chico’s FAS Inc CHS and raised the price target from $6.00 to $7.60.

Yesterday, Chico’s FAS announced a definitive agreement to be acquired by private equity firm Sycamore Partners for ~$1 billion.

The analyst noted that in May 2019, Sycamore sent CHS an unsolicited proposal to acquire the company at $3.50/share when the stock was trading around $3.70. The CHS Board reviewed the proposal and ultimately rejected it, causing the stock to slide to around $3.10. Sycamore then followed up with a $3.00/share bid, which was also rejected.

In the analyst’s view, Sycamore is a natural suiter for Chico’s, WH|BM, and Soma, given its track record of acquiring and operating apparel brands, particularly in the adult women’s subsector.

Sycamore also owns and operates MGF Sourcing, a global sourcing, manufacturing, and supply chain company that specializes in apparel, footwear, and accessories that should be another benefit to CHS sourcing and production capabilities, noted the analyst.

The analyst sees the acquisition price as fair and the transaction with Sycamore as likely to be completed on the prescribed timeline.

Given Sycamore’s brand and sourcing assets in the immediate space, the analyst sees it as a natural buyer from a financial perspective, and does not see an immediate strategic buyer stepping in for the asset at this time, given the current consumer and rate environment.

At a healthy 65% premium to the prior close, and given the lack of a financing requirement and the fact that the stock has not consistently traded above the $7 range since 2018, the analyst would expect shareholders to approve the transaction.

Price Action: CHS shares are trading lower by 0.33% at $7.50 on the last check Friday.