Ann Inc. is being urged to explore options, including a sale, by activist investor Engine Capital and Red Alder. The two firms, who collectively own more than 1% of the outstanding shares of Ann Inc., are publicly urging the company to sell at a substantial premium above current stock price.
In an open letter to the retailer’s board of directors, Engine Capital and Red Alder stated that the company is “deeply undervalued” and could be worth $50 to $55 a share to an acquirer, or a 33- to 46.5% premium to its current stock price.
“Ann is an incredibly suitable candidate for a private equity acquirer because of its consistent performance over the years, ability to further improve margins, significant and growing free cash flow generation,” the letter stated. “A large international retailer could take Ann’s iconic brands and significantly expand their presence internationally at a faster pace.”
According to the letter, Engine Capital and Red Capital have held private discussions with the Ann Inc. board in recent weeks, but did not receive satisfactory results.
“We think the status quo is untenable,” the letter said. “Therefore, we urge the board to retain immediately a nationally recognized investment bank and establish a special committee of independent directors to explore strategic alternatives to maximize shareholder value, including a sale of the company.”
In a public response, Ann Inc. said it “welcomes open communications with its shareholders and values constructive input toward the goal of enhancing shareholder value.” Without specifically addressing the open letter or prospect of a possible sale, the company said it is committed to creating shareholder value and will take actions to position itself for growth and success.
Ann Inc. recently reported earnings of $32.7 million in its fiscal second quarter, down from $35.6 million in second quarter 2013. Its results were in line Wall Street expectations. Looking ahead, the company forecast revenue for the third quarter below Street estimates and also lowered its revenue outlook for fiscal 2014.