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Rue21 to be taken private in $1.1B deal

| Thursday, May 23, 2013, 10:30 a.m.
Andrew Russell | Tribune-Review
Cie-Cie Killebrew of Penn Hills shops at the clothing store, Rue 21 in the Monroeville Mall, Thursday

A $1.1 billion deal announced Thursday to take clothing retailer Rue21 Inc. private will give the company the cash it needs to expand and implement changes to compete more effectively for youthful shoppers who want to look fashionable on a low budget.

The Marshall-based company agreed to be acquired by private equity firm Apax Partners in a deal worth $42 per share, a 23 percent premium over Rue21's closing price Wednesday of $34.12. Apax controls funds that own 30 percent of Rue21.

Rue21 sells value-priced apparel to teens and young adults through stores situated in strip centers and malls. It operates 932 stores in 47 states and competes with retailers such as Wal-Mart, Forever 21, Marshalls and T.J. Maxx.

“This transaction will allow us to focus on achieving our long-term objectives, including growing our business to over 1,700 stores in the U.S. and successfully implementing new initiatives,” said CEO Bob Fisch in a statement. Rue31 plans to open 125 stores this year.

Those initiatives include adding e-commerce sales capabilities by early 2014, said Rue21 spokesman Andrew Cole. In addition, the retailer expects to introduce its RueMan store-within-a-store concept in 20 stores late this year, he said.

The doubling of its stores gives Rue21 the opportunity to increase revenue through volume growth and by attracting business from its competitors as it carves up more territory with additional locations.

“Their story has always been square footage growth plus margin improvement. So, I assume they will grow their stores and then execute on those plans as a private company,” said Jeff Black, an analyst at Avondale Partners LLC.

The competition for business from teens and young adults is intense. Retailers who have not adapted quickly to their changing tastes in fashion offered at a reasonable price have been punished.

“They all sell on price,” said Gayle Marco, professor of marketing at Robert Morris University in Moon and associate dean of its business school. “Rue21 sells low-priced fashion wear to teens to early 20s, and they are a price-conscious group.”

The Rue21 acquisition follows 38 private-equity deals last year for apparel and shoe retailers that totaled $5.7 billion, according to a tally by Bloomberg.

Rue21 employs more than 10,000 worldwide, including about 300 at its headquarters and 200 at a distribution center in Weirton, W.Va. Cole said no layoffs are planned as a result of the pending deal.

Expected to close by the end of the year, the deal is subject to approval by a majority of Rue21 shareholders excluding shares that are owned by funds controlled by Apax. The Apax-affiliated funds have agreed to vote in favor of the transaction, the company said.

Apax is no stranger to the retailing business. Funds advised by Apax have invested about $6.3 billion of equity in retail and consumer businesses. They have included such familiar retail names as Tommy Hilfiger and Calvin Klein, while other investments include retailers Dollar Tree, Children's Place and Sunglass Hut.

Rue21's board approved the acquisition based on the unanimous recommendation of a committee of independent directors. The company plans to conduct a “comprehensive” effort over the next 40 days to canvass for any “superior” offers that might surface.

Separately, Rue21 announced preliminary financial results for the first quarter ended April 30. It said sales rose 9.1 percent, comparable store sales decreased 4.6 percent, and per-share earnings were 44 cents. Actual results will be released June 5.

“This quarter Rue21 was impacted by the same challenges that affected the entire industry — unseasonably cool weather, higher payroll taxes and delayed tax refunds,” Fisch said. “All of these factors affected shopping patterns and resulted in a tougher quarter than we had forecasted in terms of sales growth.”

Rue21 shares closed up $7.84 at $41.96.

Thomas Olson is a Trib Total Media staff writer. He can be reached at 412-320-7854 or tolson@tribweb.com.

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