Ascena Retail Inc. (ASNA, Financial) and Ann Inc. (ANN, Financial) announced a definitive merger agreement according to which Ann Inc. will be bought for $2.15 billion by Ascena retail. Ascena runs Lane Bryant and Dressbarn women’s clothing stores and Ann Inc. is mostly known for its LOFT brand.
Ascena’s five brands sell dresses to shoppers who are often middle aged. It has made money by selling plus size clothing whereas Ann Inc targets women of broader age group from 18 to 60 years. After this merger, LOFT will become Ascena’s biggest brand and will account for 22% of the total revenue. Ann Taylor along with LOFT will account for one third of the total revenue. The plus size market in the U.S. roughly accounts for $9 billion and is expected to grow strongly till 2019.
About Ascena Retail’s Business
Ascena retail Group was founded in Stamford, Connecticut in 192 as the first Dressbarn store was opened at that time. Elder Mr. Jaffe saw the chance to provide wear-to-work dresses and clothing for the working woman when women were entering the workforce and there were only few options available. Ascena’s acquisition of Ann Inc. is CEO Mr. Jaffe’s fourth deal. Ascena has stimulated most of its growth from acquisitions.
Ascena owns Catherines, Lane Bryant and other clothing brands. Ascena bought Charming Shoppes Inc. for $900 million three years ago, thus owning the Lane Bryant chain. Ascena bought Justice, which makes clothes for girls between age 10 to 14, in 2009. Ascena bought Maurices in 2005 which sells women’s apparel in smaller towns. Ascena will operate more than 5000 stores across the U.S. with sales more than $7.3 Billion in 2014. This will make it the largest women apparel seller in the country.
Ann Effect
Ann's shares tanked up by 19.2% to $46.12 in early trading. They were up to a record high of $47.20. Ascena has offered $47 per share for Ann Inc. in the stock and cash deal ($37.34 in cash and 0.68 in stock). Ascena's shares fell 2.1% to $13.91.
Ann’s sales have fallen in the past three quarter as it faces stiff competition from fast fashion chains and decrease in discretionary spending of consumers. Ascena will have a valued and very old brand as Ann Taylor and a casual, sportswear brand as LOFT after this sale. There is a lot at stake as this is a very concerned segment. Most of the women apparels are closing or have scaled back. Chains like Coldwater Creek, Deb Shops and Wet Seal have scaled back. Other chains including Talbots and J. Jill are now acquired by private-equity firms.
Impact of the Deal
Ascena also expects to take up some of Ann’s strategies. For example, 20% of Ann Inc’s revenue comes from online sales, which is much higher than what other Ascena brands make online.
Ann Inc. was under pressure from shareholders and hedge funds Engine Capital LP and Red Alder LLC. Ann hired JP Morgan (JPM, Financial) to explore a sale. The company's problems have increased in recent months by disruptions at West Coast ports. This resulted in decrease in sales and led to higher costs. Mr. Jaffe, president and CEO of Ascena retail said that he focuses on acquiring brands that are expandable and defendable.
The deal is expected to close in the second half of 2015 and Ascena expects to significantly add to earnings in the first year after the deal is closed.
