Club Monaco in talks
Stock spikes up: Most likely merger partner believed to be Limited Inc. of Columbus, Ohio
Sandra Rubin and Zena Olijnyk
Financial Post, with files from Paul Brent
Club Monaco Inc. said late yesterday it is shopping around for a merger as speculation mounted that the chain is about to fall into the arms of a major U.S. retailer.
The fashion retailer, one of the hottest issues in recent weeks on the Toronto Stock Exchange, said in a brief statement it is "currently holding discussions with a third party with respect to a possible business combination."
The name that surfaced most frequently was Limited Inc., the Columbus, Ohio, chain that operates more than 3,000 stores including Express, The Limited, Victoria's Secret, and the toney Henri Bendel.
Sources pegged the deal under discussion at $12 a share, just above the issue price for Club Monaco when it went public two years ago. It was also believed that in any buyout Limited would almost certainly want to keep Club Monaco's founders, and now its senior management team, intact. "It's highly unlikely that [president] Joe Mimran and [COO] Sol Nayman would exit the Club Monaco business," said an analyst who spoke on condition of anonymity. "They are it."
Other names that have surfaced as possible partners in recent weeks are Ralph Lauren, The Gap, and Versace.
Heavy retail action sent the shares up $1.25 to $10, prompting the Toronto Stock Exchange to ask the company to put out some kind of statement. The shares were trading as low as $3.10 in October but have staged a spectacular rebound on the strength of the company's growth strategy and future prospects.
Limited Inc. did not return a phone call seeking comment.
A merger between the two is seen as a good strategic combination on several fronts.
"Limited would be attractive to Club Monaco because they obviously know everything there is to know about every shopping mall in America," said a Bay Street analyst who asked not to be identified. "They'd be able to help negotiate real estate deals with the combined clout of their huge operations . . . and also bankroll the expansion in the U.S. marketplace."
But he said any merger with Toronto-based Club Monaco would also be an attractive proposition for Limited.
"It might be a way for Limited to get exposure into Canada that they have not had. The Gap's been up here for a long time [as have] Talbot's and others. The Limited has been noticeably absent."
Some suggested it would not necessarily be a matter of Club Monaco selling total control, but perhaps finding a company with deeper pockets to help it grow.
"You've got to wonder that Club Monaco must be somewhat frustrated about the rate of their expansion in the United States," said Jamie Spreng, retail analyst at Groome Capital Corp. in Montreal.
He suggested that even though Messrs. Mimran and Nayman have played a very strong role in the retailer's distinctive look, they might be willing to give up at least some control in order to speed up their growth plans.
"They're into so many things now, like cosmetics, household items and furniture, they need more money to put their plans into play."
Another industry source suggested that Club Monaco's original focus on growing in Asia and other parts of the world has not gone the way the company had planned, with the result that it has had to aim its sights toward growth in North America. "That means far more capital than they were perhaps counting on, give the expense of prime real estate in the United States."
Other sources speculated that Club Monaco might be trying to follow Roots Canada in becoming a "lifestyle" brand, and are perhaps somewhat envious of Roots success in that area. |
