Performance of rue21 may impact $1.1B sale

Retailer reported slump in profits over summer

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Shares of rue21, a teen clothing chain selling affordable fashion in hundreds of stores around the country, roared from a $34.12 close before the Cranberry company announced it had agreed to be acquired to $41.96 after the planned purchase price of $42 a share was announced in May.

But the shares closed at $40.65 Monday, and had been down in recent days, following the retailer's report last week showing that its fashions haven't been flying out the doors.

It's not clear if rue21's recent performance will have an impact on the $1.1 billion sale to private equity investor Apax Partners, based in London, although one research firm speculated the buyer might push for a price cut. Apax is already a major investor in rue21 and plans to take it private.

The deal is structured so that either side can walk away, but they could be on the hook for millions of dollars in termination fees, depending on which side walks and what reasons they give.

In a recent report, Alternative Investment Management & Research SA noted rue21's profit slide over the summer and soft sales mimic those seen at other teen retail chains such as American Eagle Outfitters and Abercrombie & Fitch. "The worsening performance could therefore not be a reason to invoking a ... material adverse effect" clause," the report said.

Last week, rue21 said second-quarter sales rose 13.5 percent, driven in part by new store openings, but sales in stores open at least a year fell 5.9 percent. Net income fell 88 percent in the three months ended Aug. 3. During August, the company said, sales at stores open at least a year were down 7.6 percent.

Those results have hurt efforts to raise financing for the deal, the New York Post reported over the weekend, quoted unidentified sources.

Shareholders are scheduled to vote on the sale at a special meeting at the company's headquarters Thursday.


Teresa F. Lindeman: or at 412-263-2018.


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