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Talbots stock drops after Sycamore deal collapses

Posted by dinouye  May 25, 2012 02:27 PM

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Talbots Inc's share price fell the most in more than 11 months after ending exclusive talks to be bought by Sycamore Partners for $215 million and saying it will explore other strategic alternatives.

Sycamore isn’t prepared to make a transaction at this time, Hingham-based Talbots said in a statement. Talbots said it remains open to pursuing a transaction with Sycamore at its most recent offer of $3.05 a share if the private-equity firm obtains financing commitments and there is an assurance the deal will close.

Talbots failed to reach an agreement with Sycamore after the companies extended their exclusivity period for talks twice this month and today said that it will focus on improving its business. Talbots, with more than 500 stores, is trying to reverse five years of falling sales and find a chief executive officer to replace Trudy Sullivan, who’s retiring next month.

“A turnaround will take time, and liquidity could be an issue in the future,” Jennifer Davis, an analyst at Lazard Capital Markets in New York, wrote in a note May 7. The company “has one of the riskier balance sheets in retail,” she wrote at the time, citing its $8.7 million in cash at the end of 2011 and $138 million of debt.

Talbots dropped 36 percent to $1.65 at 11:15 a.m. in New York and earlier plunged as low as $1.63 for the biggest intraday decline since June 7. The shares hadn’t traded below $2.25 since Sycamore first bid $3 a share for Talbots in December.

A spokesman for Sycamore declined to comment.

Talbots said in a separate statement that first-quarter profit excluding some items was 9 cents a share. The average of eight analysts’ estimates compiled by Bloomberg was for a loss of 2 cents a share.

The retailer rejected a $3-a-share bid from Sycamore in December as “substantially” undervaluing the company, then said in January that it had agreed to share confidential information with the private-equity firm tied to a “possible business combination.”

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