Engine Capital, Red Alder Again Urge Ann To Explore Strategic Alternatives

(RTTNews) - Hedge funds Engine Capital LP and Red Alder LLC on Monday once again urged the board of directors of women's apparel retailer Ann, Inc. (ANN) to explore strategic alternatives, including a sale of the company, in order to maximize shareholder value.

New York-based Ann is the parent company of Ann Taylor and LOFT, two women's specialty retail fashion brands in North America.

In an investor presentation, the two hedge funds, who collectively own more than 1 percent of the outstanding shares of Ann, said they spoke to several shareholders of the company, who have recommended that Ann should immediately conduct a strategic review.

"The consensus is that the status quo is not sustainable and that exploring a sale makes sense. We think some of these shareholders may have even shared similar views with Ann management and/or the Board," the hedge funds said.

Engine Capital and Red Alder urged Ann's board to retain immediately a nationally-recognized investment bank and establish a special committee of independent directors headed by board member Daniel Yih to explore strategic alternatives.

Engine Capital said it held private talks with members of Ann's management over the last couple of weeks and hoped that Ann would take prompt action to commence a process to explore strategic alternatives.

However, due to the lack of progress and the importance to act with urgency by Ann's board, Engine Capital said it no choice but to share its thoughts publicly.

The hedge funds said they invested in Ann as the company was deeply undervalued, and there are opportunities readily within the control of Ann's board to increase shareholder value substantially.

The hedge funds added that they were concerned about the board dynamics as four to five directors are retired and may view Ann's board compensation as their retirement income. They noted that that a majority of the board was up for reelection at the next annual meeting expected to be held in May or June of 2015.

According to the hedge funds, there is a long list of potential buyers for Ann. These include private equity firms like Golden Gate Capital, Sycamore Partners, Apax Partners, Bain Capital, Leonard Green & Partners, TPG, Kohlberg Kravis Roberts & Co. L.P. (KKR) and Blackstone Group LP (BX).

The hedge funds noted that strategic buyers for Ann include Chico's FAS Inc. (CHS), Ascena Retail Group Inc. (ASNA), J. Crew, and Fast Retailing Co. Ltd. (FRCOY).

"We conclude that the Company could be sold for approximately $50 to $55 per share to a financial buyer and for approximately $60 to $65 per share to a strategic buyer," the hedge funds said.

In response, Ann said it welcomed open communications with its shareholders and valued their input.

Ann said in a statement, "The Ann Inc. bard is very active and consistently has been, and remains, focused on enhancing shareholder value. To that end, the Board regularly reviews all options reasonably available to the Company and, as is typical, utilizes the services of a financial advisor in connection with those reviews."

Ann added that its board continues, in a very deliberate manner and on an informed basis, to consider and determine the courses of action that are in the best interests of all of its shareholders.

In late August too, Engine Capital and Red Alder had urged Ann's board to retain immediately a nationally-recognized investment bank and establish a special committee of independent directors to explore strategic alternatives.

Ann, in August, reported an 8 percent decline in profit for the second quarter from last year, as higher sales were more than offset by soft traffic and lower margins due to higher-than-anticipated promotional activity. In addition, the company lowered its revenue outlook for fiscal 2014.

ANN closed Friday's trading at $40.82. In Monday's pre-market activity, the stock is up $0.32 or 0.78 percent to $41.14.