Investors weren’t happy with the news that Sycamore Partners and Express Inc. have ended their discussions over a possible takeover of the retailer by the private equity firm.
Shares of the teen retailer fell 12.8 percent to close at $12.59 in Nasdaq trading.
The two said Tuesday that discussions ended “due to the unavailability of financing on commercially acceptable terms.”
Stifel analyst Richard E. Jaffe said Sycamore’s inability to obtain favorable financing terms suggests that the banks believed “Express has insufficient cash flow or operating metrics to warrant a lending rate that was attractive to Sycamore.”
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The two parties have been in discussions since June, when the private equity firm disclosed that it held a 9.9 percent stake in the chain, or 8.3 million shares, and that Express was its next takeover target.
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C.L. King & Associate’s Steven L. Marotta said that while the inability of the two to finalize a transaction was attributed to financing, “we suspect that a disagreement over the ultimate price was the deciding factor.”
While Sycamore can dispose of its shares whenever it wants, it is barred from disclosing confidential information gleaned from its due diligence until June 15, per an agreement between the two parties. Sycamore is also barred until June 15 from reaching out to third parties regarding additional financing for an acquisition.
Marotta noted, “This may set up an interesting scenario where Sycamore retains a passive stake in the company and speculation brews on another potential bid around June 15.”
Credit ratings agency S&P on Tuesday said the chain’s “BB” corporate credit rating and negative outlook “are not immediately affected” by the ending of talks between the parties. The S&P last month revised its outlook on Express to negative from stable, reflecting the teen retailer’s weaker-than-expected operating performance.
Earlier this month, however, Express increased in fourth quarter and full-year guidance for the period ending Jan. 31, based on its performance in the last week of December and first week of January. Michael Weiss, the chain’s chairman and chief executive officer, said that its retail performance during those two weeks exceeded the company’s expectations.
Express expects to report fourth quarter and full-year 2014 earnings results during the week of March 8.