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Sycamore Partners Plans Bid for Express

Tickers in this article: EXPR JOSB MW

NEW YORK ( The Deal ) -- Private equity firm Sycamore Partners has set its sights on Express , a New York-based clothing retailer.

In a regulatory filing with the Securities and Exchange Commission on Thursday after the market closed, the firm founded by Stefan Kaluzny said it had accumulated a 9.9% stake and said it wanted to proceed with due diligence to help it value the company for a buyout offer.

Express said in a statement its board had appointed a special committee to determine "a course of action it believes is in the best interest of all stockholders."

While that committee grapples with Sycamore's approach, the retailer passed a poison pill or a stockholder rights plan, causing significant dilution for anyone acquiring more than a 10% stake in Express.

The news of Sycamore's interest sent shares of Express up more than 20% in after-hours trading to $16.55 per share, giving it a market cap of nearly $1.4 billion based on a bit more than 84.2 million shares outstanding as of May 31, the end of its fiscal first quarter, according to company filings. It had cash and cash equivalents of about $250 million and long-term debt of nearly $200 million, which would push the enterprise value up a bit over the $1.4 billion market cap, based on the stock price in after-hours trading.

A 20% to 30% premium over the unaffected stock price tends to be a rule of thumb for retail buyouts. But there have been past instances where the premium can go much higher. Men's Wearhouse , for example, ended up buying Jos. A. Bank Clothiers at a 65% premium.

Over the past 52 weeks, Express has traded as high $25.05 a share, almost double its closing price on Thursday.

Yet, the retailer saw its fortunes decline in the first quarter, with sales falling from about $509 million to nearly $461 million compared to the same period a year prior.

Operating income was almost $15 million, a steep drop from nearly $59 million for the same period a year prior.

Comparable store sales, a barometer used to judge a retailer's health, were down a whopping 11%, according to the retailer. That was after its fourth quarter, in which Express held its own, with same store sales up 1%.

And Sycamore Partners, an industry source said, is a tough bargainer and a disciplined buyer, as it has proven in the past including in its leveraged buyouts of retailers like Talbots Inc. and Jones Group Inc.

Yet Sycamore tends to be more of a hybrid between a PE firm and a strategic. For example, its investment in Mast Global Fashions, an apparel manufacturing sourcing business, is a way to help its other portfolio companies cut costs and improve margins. And that sort of support ability may give it more flexibility when bargaining tuy buy apparel retailers.