Aeropostale Installs Poison Pill To Ward Off Takeover Attempts

By Mani
Updated on

Aeropostale Inc (NYSE:ARO) adopted a poison pill that would be triggered if a stockholder buys 10% of the clothing retailer.

With the company facing fire from activist shareholders, the move is considered an attempt to ward off unwanted takeover attempts.

Aeropostale faces growing investor pressure

Last week, shareholder Crescendo Partners pressured the retailer to sell itself, amid the company’s fading fortunes.

Aeropostale Inc (NYSE:ARO) has been posting disappointing results for the past three quarters in a row. The retailer has been incurring losses amid challenging a teen retail environment, high levels of promotional activity and weak traffic trends.

According to Sagarika Jaisinghani of Reuters, the retailer has been trying to reposition itself as a lifestyle brand and offer more fashionable products, in addition to hoodies, jeans and t-shirts, that will allow it to charge more for its clothing. The retailer has warned of another quarterly loss when it reports next week. Aeropostale Inc (NYSE:ARO) has been hit along with rivals by heavy discounting going into the holiday shopping season.

Aeropostale’s poison pill


The teen clothing retailer indicated Tuesday its poison pill would see a large number of new shares issued to other shareholders if one investor bought more than 10% of the company. However, for a passive investor, the threshold limit is 15%.

The retailer denied that it was resorting to the poison pill measures to ward off any takeover proposal. Its plan, effective November 26, aims to provide stockholders with adequate time to fully assess any takeover bid. The retailer indicated it would put the plan to a stockholder vote at its 2014 annual meeting. The plan will expire at the 2014 annual meeting if it doesn’t get stockholder approval.

Aeropostale Inc (NYSE:ARO) indicated its stockholder rights plan or poison pill is aimed at ensuring ‘fair and equal treatment’ of investors tied to coercive or abusive takeover techniques.

Last week, New York-based activist investment firm Crescendo Partners pushed Aeropostale Inc (NYSE:ARO) to sell itself and announce plans to nominate its own slate of directors at the 2014 annual meeting. The activist investment firm believes the retailer could be sold for at least 0.5 to 0.6 times sales, implying a price tag of $14 to $15 a share.

Recently, Sycamore Fund, through its indirectly owned firm, Hummingbird LLC, acquired 6.25 million shares or a 7.9% stake in Aeropostale Inc (NYSE:ARO).

Sycamore, which has over $1 billion under management, took Hot Topic Inc private this year. Quoting Morningstar, Inc. (NASDAQ:MORN) analyst Bridge Weishaar, Sagarika Jaisinghani of Reuters points out Sycamore Partners could be a player who would bid for Aeropostale Inc (NYSE:ARO), given its stake in the company and its history of taking troubled retailers private.


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