Talbots swings to profit; will buy out Aeon’s stake

Hingham, Mass. Talbots said Tuesday it made money in the third quarter, benefiting from lower charges, trimmed expenses and a smaller loss from discontinued operations. The retailer earned $14.6 million, better than Wall Street expected, after a loss of $170.8 million during the same period a year ago.

Sales for the three months ended Oct. 31 dropped 14% to $308.9 million from $357.3 million, missing Wall Street's revenue estimate of $318.5 million. The company said its sales results declined because it took fewer markdowns.

In other news, Talbots plans to shed its Asian majority owner through a merger with a special acquisition vehicle. Under the merger agreement with BPW Acquisition Corp., Talbots intends to buy back the 54% stake that Aeon Co. of Japan holds in the retailer.

BPW’s cash-in-trust of nearly $350 million, as well as a new $200 million credit line that Talbots received, will be used to fund the repurchase from Aeon.

“We are grateful to Aeon for their tremendous support over the years and their commitment to and belief in our strategic plan,” said Trudy F. Sullivan, Talbots president and CEO. “We are pleased that we have developed a transaction that serves the best interests of our public shareholders and facilitates an orderly transition for our majority shareholder.”

Talbots entered into an agreement with Aeon whereby Talbots will repay all $491 million of existing indebtedness held by Aeon and the Japanese banks, and retire Aeon’s 29.9 million shares of Talbots for total cash consideration of $491 million and one million warrants at the market strike price set at closing. As a result, Aeon will own no Talbots debt or equity following consummation of the transactions.

In connection with the transactions, Talbots has obtained a commitment from GE Capital Corp. to provide up to $200 million in debt financing under a secured revolving credit facility. The proceeds of this facility will be available for working capital of Talbots and, to the extent the proceeds of the BPW trust account are insufficient, for the payment of costs of the transaction and the repayment of debt. The commitment is subject to customary conditions.