May 17, 2019

Sycamore's bid for Chico's highlights lack of private equity transparency

Photo: John Greim/LightRocket via Getty Images

Women's apparel retailer Chico's FAS yesterday rejected a $3.50 per share takeover offer from private equity firm Sycamore Partners, saying it undervalued the company. Nothing shocking, given that Chico's had previously rejected an offer from Sycamore that was 18.6% higher.

Buzz: There are still some big questions about how Sycamore will fare on this non-deal, given that it disclosed a 6.6% stake in Chico's at the same time it announced its $3.50 per share takeover offer. And if that offer, which was bound to be nixed, was designed to recoup some earlier losses.

  • Outsiders are, by definition, not insiders. But that doesn't mean that they can't trade on information that will move a stock.

Before continuing, it's important to note that Sycamore doesn't like to talk to reporters about ... well, anything. And it's maintained that same posture this time around, made even more complicated by the fact that its outside PR firm happens to represent Chico's on this particular situation. So what follows is based only on public filings:

  • Sycamore reported on a Form 13D that it had invested $33.4 million to purchase the 7.64 million shares it held as of May 10 (when the revised offer was disclosed). That works out to an average of $4.37 per share.
  • But in an attached exhibit of detailed trading data, Sycamore only shows that it purchased a total of 5.07 million shares for $21 million ($4.14 per share avg), inclusive of 647,000 shares it subsequently sold for $2.57 million ($3.97 avg).
    • In other words, there's an unexplained discrepancy. It seems to work against Sycamore's favor but, if there are undisclosed purchases, perhaps there were also undisclosed sales.
  • Sycamore appeared to buy at market prices, with many of its outlays between April 25 and May 9 coming below the $3.50 per share offer it was about to make. And all purchases in that period were below where the stock spiked after the lowball offer was announced.

This missing math makes it very difficult to figure out Sycamore's performance or intentions, particularly when married to the fact that we have no disclosures (yet) about what Sycamore might have sold subsequent to its press release.

  • Yes, this is small money for a buyout firm investing out of a $4.75 billion fund. And Sycamore could have made a takeover offer without having first purchased any public equity.

The bottom line: In light of yesterday's discussion of the LTSE, it goes to show how lax public equity transparency rules can help big investors cut their losses.

Go deeper: Big-name private equity firms are asking for bigger cuts of investment profits

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Coronavirus dashboard

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  1. Global: Total confirmed cases as of 11 p.m. ET: 721,817 — Total deaths: 33,968 — Total recoveries: 151,204.
  2. U.S.: Leads the world in cases. Total confirmed cases as of 11 p.m. ET: 142,328 — Total deaths: 2,489 — Total recoveries: 4,767.
  3. Federal government latest: President Trump says his administration will extend its "15 Days to Slow the Spread" guidelines until April 30.
  4. Public health updates: Fauci says 100,000 to 200,000 Americans could die from virus.
  5. State updates: Louisiana governor says state is on track to exceed ventilator capacity by end of this week — Cuomo says Trump's mandatory quarantine comments "panicked" some people into fleeing New York
  6. World updates: Italy on Sunday reports 756 new deaths, bringing its total 10,779. Spain reports almost 840 dead, another new daily record that bring its total to over 6,500.
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U.S. coronavirus updates: Infections number tops 140,000

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

The novel coronavirus has now infected over 142,000 people in the U.S. — more than any other country in the world, per Johns Hopkins data.

The big picture: COVID-19 had killed over 2,400 people in the U.S. by Sunday night. That's far fewer than in Italy, where over 10,000 people have died — accounting for a third of the global death toll. The number of people who've recovered from the virus in the U.S. exceeded 2,600 Sunday evening.

Go deeperArrowUpdated 3 hours ago - Health

World coronavirus updates: Cases surge past 720,000

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens and confirmed plus presumptive cases from the CDC

There are now more than 720,000 confirmed cases of the coronavirus around the world, according to data from Johns Hopkins. The virus has now killed more than 33,000 people — with Italy alone reporting over 10,000 deaths.

The big picture: Governments around the world have stepped up public health and economic measures to stop the spread of the virus and soften the financial impact. In the U.S., now the site of the largest outbreak in the world, President Trump said Sunday that his administration will extend its "15 Days to Slow the Spread" guidelines until April 30.

Go deeperArrowUpdated 4 hours ago - Health