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Teen retailer, Hot Topic Inc. and a privately held investment firm, Sycamore Partners have agreed to collaborate, wherein the latter will acquire the former in an all-cash transaction worth about $600 million. Following the news, Hot Topic’s shares shot up nearly 29%, closing trade at $13.87 on Mar 7, 2013.

Under the agreement, shareholders of Hot Topic will receive $14.00 per share, representing nearly 30% premium to the company’s closing price of $10.75 on Mar 6, 2013. The transaction has been structured as a one-step merger between the participants and Hot Topic is proposed to be the surviving company.

The deal has received approval from the board of directors of both companies. Moreover, Hot Topic’s largest stakeholders, Lisa Harper and Becker Drapkin Management LP, which own 8.9% of the company’s shares, have consented to the deal. The companies now await the approval of Hot Topic’s shareholders to close the transaction.

Hot Topic is seeking financial advice from Guggenheim Securities and legal suggestions from Cooley LLP for the deal. On the other hand, Sycamore Partners has hired Bank of America Merrill Lynch, the corporate and investment banking division of Bank of America Corp. (BAC - Analyst Report), as their financial advisor and Winston & Strawn LLP and the Law Offices of Gary M. Holihan P.C. for legal counsel.

Hot Topic is a mall and web-based specialty retailer operating its namesake and Torrid concepts, along with the newly launched Blackheart concept, across North America. Its core business strategy focuses on music/pop culture related merchandise, based on the foundation of pop culture and mainly targets customers in the teenage group.

As of Feb 2, 2013, the company operated 618 Hot Topic stores across 50 states and in Puerto Rico as well as in Canada, 190 Torrid stores and 5 Blackheart stores. The company’s e-Commerce business looks strong and it runs 3 e-Commerce sites - hottopic.com, torrid.com and blackheartlingerie.com.

Currently, Hot Topic has a Zacks Rank #2 (Buy). Other stocks that continue to perform well in the retail space are Big 5 Sporting Goods Corp. (BGFV - Analyst Report) , which has a Zacks Rank #1 (Strong Buy) and Cabela’s Inc. (CAB - Analyst Report), which carries a Zacks Rank #2 (Buy).

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