Michaels financial future unfolds as big investors exit

The private equity firms that paid a premium to take Michaels private nearly a decade ago continue to gradually unwind their majority position in the nation’s largest arts and crafts retailer.

Three times within the past 12 months Bain Capital and affiliates of the Blackstone Group have sold large blocks of shares that collectively have dramatically reduced their ownership stake. The most recent example involves the sale of 12 million shares owned by Blackstone Group to Goldman Sachs. The sale reduced the companies’ ownership stake to 63% from 69% and follows an even larger transaction earlier this year. Bain and Blackstone sold 18.8 million shares in January which reduced their ownership position from 80% of the outstanding shares.

The private equity firms’ exit strategy began unfolding roughly one year ago when Michaels completed a public stock offering. Bain and Blackstone had taken the company private Oct. 31, 2006 when they paid $44 a share for the company in a deal valued at $6 billion. At the time, that price represented a 30% premium from Michael’s closing price on March 20, 2006 when the retailer first announced it was exploring strategic alternatives.

In the initial public offering on July 2, 2014, Michaels offered 27.8 million shares priced at $17 a share which took the combined Bain and Blackstone ownership position down to 80% from a peak of 93%.

While Bain and Blackstone have gradually reduced their stake in Michaels, the firms maintain control of six of the 10 board seats at a retailer they have left saddled with debt. Michaels ended last year with nearly 1,300 stores generating annual sales of $4.7 billion, but it also had total outstanding debt of $3.1 billion, down from nearly $3.7 billion at the end of 2013. A portion of the debt is related to notes the company issue around the time of its IPO to pay a special dividend totaling $780 million.