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Michaels (MIK) to Go Private in Buyout Deal with Apollo

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Shares of The Michaels Companies rallied 22% on Mar 3, after signing a definitive agreement to be acquired by Apollo Global Management, Inc. (APO - Free Report) for $5 billion. The deal, which is subject to customary closing conditions, is expected to be concluded by the first half of fiscal 2021.

After the completion of the deal, the arts and crafts retailer will become a private company. the transaction will help Michaels invest, expand and enhance its retail and digital channels. Prior to this, Michaels went private when it was acquired by private equity firms, Bain Capital and Blackstone, in 2006, but became public again in 2014.

Per the agreement, Apollo will acquire all outstanding shares of Michaels for $22.00 per share in cash through a tender offer. This price marks a 47% premium from the company’s closing stock price of $15 per share on Feb 26, 2021, and a 78% premium to the 90-day volume-weighted average price. The remaining shares, which are not covered in the tender offer, will also be acquired by Apollo in a second-step merger at the same price. In the second phase of the merger, the transaction of these shares will be funded by equity provided by Apollo managed funds along with committed debt financing.

Apart from these, the deal includes a 25-day go-shop period for Michaels to seek out other offers. In case of a better proposal, the company has the right to terminate the deal.

What Else Do You Need to Know?

Michaels has been gaining from expanded omnichannel capabilities, a customized marketing strategy and Maker-centric branding. Strength in the core arts and crafts business also bodes well.

The company remains focused on integrating its e-commerce and in-store operations to enhance the omnichannel experience. Some of its omnichannel efforts include new delivery options, like curbside pick-up; same day delivery; ship from store; buy online, pick-up in store, or BOPIS; in-app purchases and more. Also, the company’s new online express checkout option offers customers an even more convenient shopping experience in just four clicks. Management also foresees e-commerce sales growth to continue in the near term.

Moreover, the company is progressing well with its customer-centric, core 'Maker' strategy, which aims at strengthening its retail foundation, boosting omnichannel experience and repositioning the business. It opened its first Maker store in McKinney, TX, which offers personalized assortment, better layout, improved services and a host of omnichannel capabilities. It also revamped the rewards loyalty program and reinvented its store formats with a new in-store layout, inspiration hubs and an innovative checkout design under its core Maker strategy.

Further, it is on track to maximize marketing productivity through its media-mix model, wherein it will shift to higher productivity media options such as digital and addressable TV, without increasing the spending. Michaels also implemented a pricing and promotion strategy, which is likely to help optimize discounts and improve customers’ perception of the value it offers through discounts, coupons and other promotional activities.

Encouragingly, this Zacks Rank #3 (Hold) stock has surged 82% in the past three months, outperforming the industry’s growth of 8%.

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