Dress Barn Inc. and Tween Brands Inc. have entered into a definitive merger agreement. In the stock-for-stock transaction, a subsidiary of Dress Barn will merge with Tween Brands. Each share of the latter’s common stock will be exchanged for 0.47 shares of Dress Barn common stock, representing an equity value of approximately $157 million based on June 24 closing stock prices for both companies. Upon closing of the transaction, Tween Brands stockholders are expected to own approximately 16% of Dress Barn. Tween Brands bank debt will also be repaid in connection with the transaction. The deal is expected to close in the fourth quarter.
Tween Brands’ Justice concept “is a highly attractive business that has come under significant pressure as a result of the tight credit market and the challenging consumer environment,” said David R. Jaffe, president and CEO at Dress Barn, in a statement. “The management at both companies believes there is an excellent opportunity over the next several years to grow the operating margin for the Justice business,” he continued.
Justice currently operates 908 retail stores and offers reasonably priced fashion for girls ages 7 to 14. It also mails visually driven catazines and direct mail pieces to millions of tween girls annually. Tween Brands also owns the Limited Too brand for tween girls.
In March, Tween Brands received notification from the New York Stock Exchange that it didn’t comply with continued listing standard because its average market capitalization over a 30-day period was less than the $75 million required by the NYSE.
Tween Brands said at the time that it would submit a plan to the NYSE demonstrating how it would regain compliance by transitioning to a single retail concept taking the best of Limited Too and Justice, which is more value-oriented than Limited Too, to create a new Justice, which launched in February. A Limited Too clothing line is found in select Justice stores and online at www.shopjustice.com.
Dress Barn said it will seek to implement best practices across the organization in order to realize enhanced sales and profitability. It also expects to realize economies of scale in areas such as sourcing and real estate from the deal.
Once the deal is completed, Tween Brands will operate as a separate subsidiary of Dress Barn. Its current management team will continue to manage operations and Mike Rayden, currently chairman and CEO of Tween Brands, will report to Jaffe.