Jo-Ann to be Acquired for $1.6B

Jo-Ann Stores Inc. (JAS), the fabric and craft retailer announced that it will be purchased by an affiliate of private-equity firm, Leonard Green & Partners LP for $61 per share, or $1.6 billion, in cash. The offer price was at a 34% premium to Wednesday’s closing price of $45.63.

The deal has been accepted by the Jo-Ann Stores board. However, the completion of the deal is subject to regulatory and shareholders’ approval as well as other customary closing conditions. The merger deal allows Jo-Ann Stores the option to weigh other offers that it might get from a third party through February 14, 2011, but the possibility of a higher bid seems unlikely. The transaction is expected to close in the first half of 2011.

Los Angeles-based Leonard Green has invested around $44 billion in 52 companies since its foundation in 1989. Last month, the firm agreed to buy fashion retailer J. Crew Group Inc. with private equity firm TPG Capital for about $3 billion. The firm also purchased a 9.5% stake in warehouse club operator BJ's Wholesale Club Inc. (BJ) over the summer.

Hudson, Ohio-based Jo-Ann Stores has756 stores in 48 states. It believes in expanding through acquisitions and remodels existing stores throughout its network. Jo-Ann plans to open 30 new stores and close approximately 25 stores in 2011. The company targets 55 to 60 new store openings in 2012.

We believe the association with Leonard Green & Partners LP has definitely set the stage for another milestone for Jo-Ann Stores. In the third quarter, the company reported earnings of $1.09 per share, a penny higher than the Zacks Consensus Estimate. Total revenue climbed 5.1% year over year to $535.3 million driven by a 4.1% rise in same store sales.

Encouraged by third quarter results, Jo-Ann Stores raised its 2011 earnings outlook to a range of $3.35 to $3.45 per share from its previous forecast of $3.20 to $3.35. The company also narrowed its same store sales guidance to 3.5% to 4.0% from its previous expectation of 3.0% to 4.0%.

Jo-Ann Stores ended third quarter 2010 with no outstanding debt and cash and cash equivalents of $112.4 million.

Centerview Partners and J.P. Morgan, a part of JPMorgan Chase & Co. (JPM - Analyst Report) are acting as financial advisors to Jo-Ann Stores. Bank of America Merrill Lynch, a part of Bank of America Corporation (BAC - Analyst Report)and Barclays Capital, a part of Barclays PLC (BCS - Snapshot Report) are serving as financial advisors to Leonard Green & Partners.

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