2 buyout firms to buy Eddie Bauer

$286 million price is one-third retailer's share value on exiting bankruptcy in 2005

November 14, 2006|By Bloomberg News

NEW YORK -- Outdoor-clothing retailer Eddie Bauer Holdings Inc. agreed yesterday to be acquired by two buyout firms for $286 million, or about one-third of its share price when it exited bankruptcy last year.

Sun Capital Partners Inc. and Golden Gate Capital will pay $9.25 a share in cash for the 380-store chain and will assume $328 million in debt, the companies said. Eddie Bauer emerged from Spiegel Inc.'s bankruptcy reorganization as a stand-alone public company in June 2005.

Eddie Bauer, founded in 1920, said the sale would provide resources to turn itself around. The retailer incurred losses in the past two quarters after switching its focus from outdoor gear to fashions for its younger customers. Private equity firms have spent at least $18 billion buying retailers this year.

"It's an investment in a brand identity," said Candace Corlett, a principal at the consulting firm WSL Strategic Retail in New York. Eddie Bauer has suffered from targeting the wrong customer and choosing poor store locations, she said. The new owners will need to better identify the company's target audience, and are likely to expand catalog and online sales, she said.

Shares of Eddie Bauer gained 14 cents, or 1.6 percent, to close at $8.99 yesterday on the Nasdaq stock market. The shares closed at $27.50 on June 21, 2005, after the company exited bankruptcy. It put itself up for sale in May.

Sun Capital has holdings in retailers such as Mervyn's LLC and Lillian Vernon Corp. Golden Gate Capital has invested in Catalog Holdings Inc., a direct marketer of women's apparel under brands including Spiegel.

Eddie Bauer may have its credit ratings cut because of the sale, Standard & Poor's Rating Services said today. The retailer's debt is non-investment grade.

The sale, expected to close in the first quarter, is the latest private-equity acquisition of a retailer. Buyout firms have agreed to purchase about 65 U.S. retailers and restaurant companies so far this year, according to Bloomberg Data.

Future owners of closely held investment firms such as Eddie Bauer use a combination of their own funds and borrowed money to buy companies, with the goal of selling them at a profit.

Eddie Bauer posted a loss of $42 million, or $1.40 a share, on revenue of $226 million in the three months that ended July 1, according to a Securities and Exchange Commission filing.

The chain has blamed its losses on poor consumer response to merchandise changes. It has said its fashions were too skewed to younger customers among its 30-to-54 age group, it moved too far away from its "outdoor heritage" and it offered too many colors. The retailer said it also raised prices too aggressively.

Once it left bankruptcy to become a stand-alone company, Eddie Bauer issued 30 million shares to 575 lenders who were owed $1.4 billion in debt by Spiegel.

In the biggest private-equity purchase of a retailer this year, Michael Stores Inc. agreed in June to a $6 billion buyout by Bain Capital LLC and Blackstone Group LP. Luxury retailer Neiman Marcus Group Inc. was bought a year ago for $5.1 billion by Texas Pacific Group and Warburg Pincus LLC.

Federated Department Stores Inc. sold May Department Stores Co.'s Lord & Taylor division to a group of investors including Apollo Real Estate Advisors LP for $1.2 billion in October.

Founder Eddie Bauer opened his first sportswear store in Seattle in 1920 after he had a bout of hypothermia when the wool clothing he had worn on a fishing trip proved to be inadequate, according to Hoover's Inc.

He later invented the Skyline, a goose-down insulated jacket, and sold jackets to the military during World War II. Mail-order operations began in 1945. General Mills Inc. bought the company in 1971 and expanded its retail operations to about 60 stores. Spiegel acquired the company in 1988.

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