Buyout Target Express Adopts ‘Poison-Pill’ Defense

Buyout Target Express Adopts ‘Poison-Pill’ Defense

Columbus-based fashion retailer Express is fighting to remain a public company, invoking a defense to make it harder for one of its investors, Sycamore Capital, to buy the company and take it private.

Express has adopted a stockholder-rights plan — commonly known as a “poison pill” — in response to Sycamore’s bid to buy the company.

Even so, the sale to Sycamore Partners “has a better than 50 percent chance of being completed,” said analyst Richard Jaffe of Stifel Nicolaus, a brokerage and investment-banking firm, in a note to investors. “However, we believe the transaction will be prolonged.”

Sycamore, in a filing on Thursday, said it paid $106.2 million to buy 8.3 million Express shares, or 9.9 percent of the company, and plans to offer to buy Express within 30 days.

Express said in a statement that under its poison-pill plan, if anyone bought 10 percent or more of its outstanding stock, the company would take action to significantly dilute the voting power of that person or group. Thus, the poison-pill plan could block Sycamore from moving forward with a purchase without the approval of Express.

In addition to the plan, Express said it has established a special committee of its board of directors to decide on the best moves for the company and its shareholders.

Express also said it has hired financial advisory firm Perella Weinberg Partners and law firm Sullivan Cromwell to advise the committee, whose members have not been publicly named.

Since Sycamore announced its buyout plan on Thursday, Express’ share price has risen by more than 20 percent.

But not all on Wall Street see the news as a plus.

“If the fund acquires Express and finances the deal with a typical (leveraged buyout) capital structure, debt levels will increase significantly, likely leading to a downgrade scenario since the current ratings and outlook do not have cushion for a material increase in debt,” Moody’s Investors Service analysts Raya Sokolyanska and Alexandra S. Parker wrote in a note to investors.

The retailer has had its financial challenges, and that is the kind of company that Sycamore Capital, a New York-based private-equity firm, has made a habit of acquiring. Since Sycamore was founded in 2011, it has bought or bought an interest in such brands as Talbots, Aeropostale, Hot Topic, Coldwater Creek, Jones New York, Kurt Geiger, Nine West and Stuart Weitzman.

Two board members of one of the companies Sycamore owns — Talbots — also serve on the Express board, and that could create problems as the potential sale of Express moves forward, said Eleanor Bloxham, a corporate-governance expert based in Westerville.

Michael G. Archbold, who was appointed to the Express board of directors in January 2012, and Michael F. Devine III, who has been on the Express board since May 2010, both also serve on the board of Talbots, a women’s fashion retailer that Sycamore Partners bought in August 2012.

“Some boards have so many interlocking relationships that sometimes they have trouble finding someone truly independent to weigh a purchase proposal,” Bloxham said. “It can be very problematic.”

Sycamore has other connections to Express that make its interest in the retailer “not surprising,” Moody’s analysts said. They pointed to “the founders’ previous participation in helping to turn around Express during 2007-2010 while at Golden Gate Capital.”

Sycamore was founded by Stefan Kaluzny and Peter Morrow, who both previously were principals at Golden Gate Capital, the private-equity firm that bought Express from Limited Brands in 2007.

Kaluzny was chairman of the board of directors at Express until November 2011; he resigned because Sycamore Partners had acquired a controlling interest in the clothing source and production business Mast Global Fashions, whose clients include Express.