Ascena Retail Group, Inc. (ASNA - Free Report) stock jumped 8.4% on Mar 25, after the company has agreed to sell a majority stake in its subsidiary — Maurices Incorporated (“maurices”) — to an affiliate of a private-equity firm OpCapita LLP for nearly $300 million.
The deal is likely to close by early summer and subject to customary closing conditions that include expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. Management anticipates to receive approximately $200 million in cash after expenses, which will be used to pay the term loan balance or reinvest in its business according to terms of the credit facilities.
As of Feb 2, 2019, Ascena had a total debt of $1,372 million, which represents the balance remaining on the term loan. Thus, repaying the term loan will aid in reinforcing the company’s liquidity position.
However, Ascena will continue to have a minority interest in Maurices following the sale. Also, the company will support the brand’s shared business services platform including IT, supply chain, sourcing and some back office activities via services agreement.
Notably, this latest deal is an integral part of the company’s broader portfolio review, which covers assessment of its brands, operations and assets. This is well reflected by the company’s Change for Growth plan that was initiated in 2016. By July 2019, management remains on track to generate run-rate cost savings of about $300 million through this initiative. Also, Ascena has identified opportunities to generate additional savings of $150 million that are likely to aid operating margin expansion.
The latest deal is likely to reinforce the company’s brand portfolio, creating a leaner operating structure and increasing competency. Moreover, we expect the company’s growth initiatives including cost savings to provide a cushion to this Zacks Rank #4 (Sell) stock that has plunged 55.7% in the past three months against the industry’s 2.7% growth.
Certainly, Ascena is not fully immune to the challenges in the current retail scenario. However, a concrete effort may help the same to navigate through rough tides.
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