Charlotte Russe Holding Inc. has spurned a takeover offer from the buyout duo of
The buyout proposal, made public on Nov. 12, valued shares of the San Diego-based retailer of young women’s apparel and accessories at between $9 and $9.50 per share, representing a premium of more than 30 percent to where the stock had closed in the previous session. At press time, the shares, which are down more than 70 percent since the start of 2008, were changing hands at well below $5, after scraping a 52-week low of $4.21 on Nov. 21.
Just before press time, according to a regulatory filing, KarpReilly and H.I.G. Capital withdrew the proposal but it seems unlikely KarpReilly will be deterred quite so easily. Simultaneous to announcing the acquisition proposal, the Greenwich, Conn., firm also disclosed the separate purchase of 1.12 million Charlotte Russe shares, representing a 5.4 percent stake in the company. In a subsequent 13D filing with the Securities and Exchange Commission on Nov. 18, KarpReilly said the cost of that stake was $10.8 million, excluding commissions. It made the purchase from its debut pool,
The timing of the proposal coincided with two major developments at Charlotte Russe. The company has installed a completely new senior management team, filling a vacuum that had lingered since late July. It also posted weak results for its fiscal fourth quarter with adjusted earnings weighed down by heavy markdowns on back-to-school merchandise. The company, which currently operates 487 stories in the United States and Puerto Rico, also forecast earnings, exclusive of certain costs, of 10 to 18 cents a share, for the first quarter of fiscal 2009, a view that fell short of Wall Street’s expectations for a profit of 45 cents a share.
This performance and forecast prompted KarpReilly to hint that it would look to cut the proposed $9-$9.50 per share consideration. In the Nov. 18 filing with the SEC, the firm said the earnings and outlook were “significantly below” its prior expectations for Charlotte Russe.
Interest in acquiring Charlotte Russe is a recurring theme for Allan Karp, whose previous independent firm,
Karp was with Apax Partners until March 2007, when he and long-time colleague Christopher Reilly left to form their namesake firm. KarpReilly then apparently wasted little time in letting Charlotte Russe know of its interest. Karp resigned from its board in July 2007, and the firm said in its own press release on Nov. 12 that it approached the company about a potential deal “almost a year ago.”
The tension seems to have mounted from there. Charlotte Russe’s board elected to adopt a poison pill plan in August, although it stated at the time that this was not in response to any specific proposal. Without the cooperation of the board, KarpReilly and H.I.G. Capital could look to mount a hostile takeover. Karp’s tact from the start has been to question the ability of the company to execute a turnaround while still trading in the volatile public markets.
According to its Web site, KarpReilly looks for deals that require between $10 million and $75 million of equity capital, and its sectors of interest, beyond retail, include building products, business services, consumer brands, health care services and restaurants. H.I.G. Capital is a Miami-based firm whose funds invest in private equity, venture capital, distressed debt and public equities.