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Chico’s FAS Set to Go Private in Deal Led by Sycamore – Merger Arbitrage Mondays

  • October 2, 2023

Key Highlights

  • Chico’s FAS, Inc. (CHS) to be acquired by Sycamore Partners for $1.59 billion or $7.60 per share in cash.
  • The acquisition of Blue Apron Holdings (APRN) by Wonder Group for $103 million or $13 per share in cash.
  • Stratasys (SSYS) terminated its Merger Agreement with Desktop Metal (DM).
  • FTC continues to challenge Microsoft’s (MSFT) acquisition of Activision Blizzard (ATVI).
  • Harmony Biosciences Holdings (HRMY) extends the expiration of its tender offer to acquire Zynerba Pharmaceuticals (ZYNE).

Chico’s FAS, Inc. (CHS) $7.48

Market Cap: $569.05 million

Enterprise Value: $966.22 million

On September 28, 2023, Chico’s FAS entered into a definitive agreement to be acquired by Sycamore Partners for $7.60 per share in cash.  Four years ago, in 2019, Chico’s FAS refused Sycamore’s repeated attempts to acquire it.

The company had received and rejected an unsolicited proposal from Sycamore to acquire Chico’s FAS for $4.30 per share in cash back in 2019. Sycamore came back with an offer of $3.50 per share in May 2019 and lowered it further to $3.00 per share in June 2019. Both these offers were rejected by Chico’s FAS’s board of directors.

Based in New York, Sycamore Partners is a private equity firm with approximately $10 billion in committed capital, specializing in investments within the consumer, distribution, and retail sectors. The Sycamore portfolio comprises various retail businesses and brands, including Belk, Staples, Talbots, and The Limited. Earlier this year, there were reports of the firm expressing interest in acquiring Subway, although the deal ultimately went to Roark Capital for $9.6 billion.

Sycamore stated the following in its letter to Chico’s FAS in June 2019,

Chico’s FAS, Inc. has declined to engage with us despite its continued poor performance. Since our prior offer on May 10th, the company’s trailing twelve-month EBITDA has fallen almost $35 million through the first quarter and management has lowered its guidance for the year. This continues a pattern of the company lowering its guidance and then not meeting it.

Chico’s price on May 10, 2019, after receiving the proposal from Sycamore was $3.99.

Company Overview

Chico’s FAS is a Florida-based fashion company that was founded in 1983. Founders Marvin and Helene Gralnick established a small Mexican folk art store in Periwinkle Place, Sanibel Island, Florida. Initially called Folk Art Specialties, Helene later renamed it Chico’s Folk Art Specialties, inspired by a friend’s pet parrot, Chico. The company operates three distinct brands, namely Chico’s, White House Black Market, and Soma.

The primary brands of the company contribute to its revenue as follows: Chico’s accounts for 50%, White House Black Market for 28%, and Soma for 22%. As of the second quarter of 2023, the company manages 1,258 stores within the United States and operates an additional 58 franchise stores in Mexico and two domestic franchise locations in airports.

Chico's FAS Q2 Business Highlights

Transaction Details

Under the terms of the agreement, Chico’s FAS shareholders are set to receive $7.60 per share in cash, reflecting a 65% premium over the company’s closing stock price on September 27, 2023, the day before the deal was announced, and a premium of over 90% to the company’s closing price on May 10, 2019.

The transaction is not subject to a financing condition and only requires the standard closing procedures to be completed, which involve approval from Chico’s FAS shareholders and compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Chico’s FAS will operate as a privately held entity post-acquisition.

The agreement also incorporates a 30-day ‘go-shop’ provision, active until October 27, 2023, which will allow Chico’s FAS and its financial advisor to actively seek potentially superior acquisition proposals.

If the agreement is terminated during the ‘go-shop’ period, Chico’s FAS will have to pay a termination fee of $14.98 million to Sycamore Partners. If it terminates the agreement after the ‘go-shop’ period, the termination fee will be $29.96 million. The agreement also includes an ‘Antitrust Termination Fee’ of $39.94 million,

The deal is expected to close by the end of the first calendar quarter of 2024. The current spread on the deal is 1.6%, with an annualized rate of 3.22%.


Blue Apron Holdings (APRN) $12.88

Market Cap: $$82.26 million

Enterprise Value: $$80.53 million

Another deal that stood out last week was the acquisition of Blue Apron Holdings by Wonder Group for $103 million or $13 per share in cash. We added Blue Apron as a potential deal to our ‘Deals in the Works’ section on on February 18, 2020, when the Wall Street Journal reported that the company was exploring strategic options including putting itself up for sale, after reporting customer defections and another quarterly loss. Blue Apron’s price after the news of the potential deal came out was $52.44.

I wrote the following about the deal in a post on Twitter:

Blue Apron, the meal kit company, that was at one point worth nearly $2 billion just sold itself for about $100 million.

It was acquired today by a meal delivery app for $13 per share. The acquisition was at a massive premium of 137% to the prior day’s trading price or 77% to the 30-day average trading price. While the stock price and the premium sound great, the stock was down more than 95% over the last five years even after accounting for this premium paid.

The only reason the stock was not a penny stock was because of a 1 for 15 reverse split in June 2019 and then a second 1 for 12 reverse split in June 2023.

This ends a journey that lasted almost 11 years since the company’s founding in 2012. It was fascinating that despite partnerships with Whole Foods, Amazon, and Walmart, the company never turned a profit.

The deal trades at a spread of 1.4% or 5.55% annualized if the deal closes by year-end.


Merger Arbitrage activity remained steady last week with four new deals announced, six deals completed, and one deal terminated.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 2023135
Total Number of Deals Not Completed in 202311
Total Number of Pending Deals
Cash Deals42
Stock Deals17
Stock & Cash Deals5
Special Conditions5
Total Number of Pending Deals69
Aggregate Deal Consideration$826.6 billion

New Merger Arbitrage Deals:

  1. The acquisition of Intercept Pharmaceuticals (ICPT) by Alfasigma S.p.A for $647.46 million or $19 per share in cash.
  2. The merger of FNCB Bancorp (FNCB) with Peoples Financial Services (PFIS) for $129 million in an all stock deal. Under the terms of the agreement, shareholders of FNCB Bancorp will receive 0.1460 shares of Peoples common stock for each share of FNCB common stock they own.
  3. The acquisition of Chico’s FAS, Inc. (CHS) by Sycamore Partners for $1.59 billion or $7.60 per share in cash. We added CHS as a potential deal to the Deals in the Works section on May 10, 2019, and the price after the news of the potential deal came out was $3.99.
  4. The acquisition of Blue Apron Holdings (APRN) by Wonder Group for $103 million or $13 per share in cash. We added APRN as a potential deal to the Deals in the Works section on February 18, 2020, and the price after the news of the potential deal came out was $52.44.

Deal Updates:

  1. Earthstone Energy (ESTE) and Permian Resources Corporation (PRfiled a premerger notification and report form under the HSR Act on September 1, 2023. The waiting period under the HSR Act will expire on October 2, 2023.
  2. NextGen Healthcare, Inc. (NXGN) and Thoma Bravo filed their respective HSR Act notifications on September 19, 2023.
  3. On September 27, 2023, in connection with the previously announced merger agreement, Harmony Biosciences Holdings (HRMY) announced that Xylophone Acquisition a wholly owned subsidiary of Harmony, has extended the expiration of its tender offer to acquire all of the outstanding shares of common stock of Zynerba Pharmaceuticals (ZYNE) to October 10, 2023, unless further extended.
  4. On September 29, 2023, Tabula Rasa HealthCare (TRHC) and ExactCare Pharmacy announced that the waiting period under the HSR Act expired on September 18, 2023. The companies also made the required filings with the California Board of Pharmacy on September 18, 2023, with the New Mexico Board of Pharmacy on September 25, 2023, and with the North Carolina Board of Pharmacy on September 7, 2023 and September 12, 2023.

Approvals:

  1. On September 25, 2023, Crestwood Equity Partners (CEQP) by Energy Transfer (ETannounced the expiration of the waiting period under the HSR Act.
  2. Thorne HealthTech (THRN) announced that the waiting period under the HSR Act expired on September 26, 2023.
  3. On September 28, 2023, PolyMet Mining Corp. (PLM) announced that the Supreme Court of British Columbia has granted an interim order in connection with the company’s acquisition by Glencore AG.
  4. On September 28, 2023, Kaleyra (KLR) announced that its stockholders have approved all proposals related to the proposed acquisition of the company by Tata Communications Limited.

Hurdles:

  1. On September 27, 2023, Bloomberg reported that the US Federal Trade Commission is continuing its challenge of Microsoft’s (MSFT) acquisition of Activision Blizzard (ATVI), in yet another attempt to fight the deal even after it closes.
  2. On September 27, 2023, Senator Elizabeth Warren (D-MA) sent a letter to JetBlue CEO Robin Hayes calling on him to provide an explanation for reports that recently revealed internal JetBlue (JBLU) analysis predicting massive fare increases and service cuts if regulators approve the proposed JetBlue-Spirit (SAVE) merger.

Shareholders Meeting Schedule

  1. Crestwood Equity Partners (CEQP) – October 30, 2023
  2. Tabula Rasa HealthCare (TRHC) – October 31, 2023
  3. New Relic (NEWR) – November 1, 2023

Closed Deals:

  1. The acquisition of Decibel Therapeutics (DBTX) by Regeneron Pharmaceuticals (REGN) was completed on September 25, 2023. It took 47 days for this deal to be completed.
  2. The acquisition of Magellan Midstream Partners (MMP) by ONEOK (OKE) was completed on September 25, 2023. It took 134 days for this deal to be completed.
  3. The acquisition of Liminal BioSciences (LMNL) by Structured Alpha LP was completed on September 26, 2023. It took 76 days for this deal to be completed.
  4. The acquisition of Reata Pharmaceuticals (RETA) by Biogen (BIIB) was completed on September 26, 2023. It took 60 days for this deal to be completed.
  5. The acquisition of Triton International Limited (TRTN) by Brookfield Infrastructure Partners L.P. (BIP) was completed on September 28, 2023. It took 169 days for this deal to be completed.
  6. The acquisition of Syneos Health (SYNH) by a consortium of private investment firm affiliates composed of Elliott Investment Management, Patient Square Capital, and Veritas Capital was completed on September 28, 2023. It took 141 days for this deal to be completed.

Terminated Deal:

  1. On September 28, 2023, Stratasys (SSYS) announced that it has terminated the Merger Agreement with Desktop Metal (DM). Stratasys also announced that its Board of Directors has initiated a process to explore strategic alternatives for the company.

Weekly Spread Changes:

The table below shows weekly spread changes between September 22, 2023, and September 29, 2023.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
ZYNE1.275Harmony Biosciences Holdings, Inc. (HRMY)32.83-12.94%-16.85%3.91%Special Conditions
ACI22.75The Kroger Co. (KR)44.7519.78%17.41%2.37%Special Conditions
TMBR2.97LEO US Holding, Inc. (N/A)-11.78%-14.10%2.32%Special Conditions
SCU11.6Rithm Capital Corp. (RITM)9.29-3.88%-4.78%0.90%All Cash
SGEN212.22Pfizer Inc. (PFE)33.177.91%7.19%0.72%All Cash
AJX6.44Ellington Financial Inc. (EFC)12.472.78%5.42%-2.64%All Stock
PTRS7.76LINKBANCORP, Inc. (LNKB)6.72-0.41%2.61%-3.02%All Stock
SAVE16.5JetBlue Airways Corporation (JBLU)4.59587.88%91.36%-3.48%All Cash
AMTI0.1627Cyclo Therapeutics, Inc. (CYTH)1.39549.19%54.11%-4.92%All Stock
WRK35.8Smurfit Kappa (SMFTF)32.93995.98%11.38%-5.40%Cash Plus Stock

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
SAVE07/28/2022JetBlue Airways Corporation (JBLU)$31.00$16.506/30/202487.88%117.49%
AMTI09/21/2023Cyclo Therapeutics, Inc. (CYTH)$0.24$0.162712/31/202349.19%197.30%
IRBT08/05/2022Amazon (AMZN)$51.75$37.8502/05/202436.72%105.55%
ACI10/14/2022The Kroger Co. (KR)$27.25$22.7503/31/202419.78%39.67%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$44.6112/31/202312.75%51.16%
NGMS05/14/2023Aristocrat Leisure Limited (ALL.AX)$29.50$27.00505/14/20249.24%14.92%
CPRI08/10/2023Tapestry, Inc. (TPR)$57.00$52.6106/30/20248.34%11.16%
AMED06/26/2023UnitedHealth Group Incorporated (UNH)$101.00$93.412/31/20238.14%32.64%
SGEN03/13/2023Pfizer Inc. (PFE)$229.00$212.2201/31/20247.91%23.66%
SPLK09/21/2023Cisco (CSCO)$157.00$146.2609/30/20247.34%7.34%

Deals In The Works

Two new potential Merger Arbitrage deals was added to the ‘Deals In The Works‘ section last week.

  1. September 26, 2023: According to Reuters, Onex (ONEX.TO) has been in talks with potential advisers about the future ownership of Emerald (EEX), a U.S. based trade show organiser.
  2. September 27, 2023: According to Reuters, Pros Holdings Inc (PRO), a U.S. provider of revenue management software to airlines and other industries, is exploring options that include a potential sale.
  3. September 29, 2023: According to Bloomberg, Bain Capital and TPG Inc. (TPG are weighing a deal for CCC Intelligent Solutions Holdings Inc., (CCCS) the car-insurance software provider controlled by Advent International.

Updates:

  1. According to Bloomberg, Jim Ratcliffe is restructuring his offer to buy Manchester United Plc (MANU).
  2. Stratasys (SSYS) announced that its Board of Directors has initiated a process to explore strategic alternatives for the company.
  3. 3D (DDD) Systems announced that it is willing to add a go-shop period in its bid for Stratasys (SSYS).

SPAC Arbitrage

Completed

  1. On September 29, 2023, TradeUP Acquisition (UPTD) and Estrella Biopharma (ESLAannounced the successful closing of their business combination.
  2. On September 29, 2023, Mercato Partners Acquisition Corporation (MPRA) and Nvni Group Limited (NVNI) announced the successful closing of their business combination.

Terminated

  1. On September 27, 2023, Integrated Wellness Acquisition Corp (WEL) announced that it notified Refreshing USA, LLC that the company had elected to terminate the Agreement and Plan of Merger among the parties.

List of all pending Merger Arbitrage deals:

Disclaimer: I have long positions in Activision Blizzard (ATVI) and Spirit Airlines (SAVE). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.