UPDATE 2-Talbots sets financing deal, posts surprise profit
* Q3 EPS ex-items 30 cts vs. Street loss view 14 cents
* Cuts $330 debt mln via BPW deal, ends Aeon majority stake
* Gets new credit facility from GE Capital
* Shares up 14 percent (Adds investor comment, plan details, byline; updates stock price)
By Martinne Geller
NEW YORK, Dec 8 (Reuters) - Talbots Inc TLB.N laid out an acquisition and financing plan that would reduce debt and end a 21-year relationship with Japan-based majority owner Aeon Co Ltd (8267.T), boosting the clothing retailer's stock 19 percent.
Talbots, which caters to mature women with sweaters, blazers and other apparel, also reported a surprising quarterly profit even though sales slumped.
Talbots said on Tuesday it will reduce debt by about $330 million through its purchase of BPW Acquisition Corp BPW.A, a special purpose acquisition company with $350 million in cash.
Additional financing will come from GE Capital, the financing arm of General Electric Co (GE.N), through a $200 million senior secured revolving credit facility.
Under terms of the deal, Talbots will offer $11.25 worth of its stock for each BPW share, based on prices prior to the BPW stockholders meeting. Talbots will use the proceeds to buy back the 54 percent stake that Aeon owns.
Following the closing of the deal, expected by the end of the first quarter of 2010, Aeon will no longer hold any Talbots debt or equity. Aeon, Japan's second-largest retailer, has been Talbots' majority shareholder since 1988.
"All good things come to an end," Talbots Chief Executive Trudy Sullivan said on a conference call with analysts. "We are pleased that our agreement with BPW serves the best interest of our public shareholders and permits an orderly transition for Aeon."
An official with Aeon USA could not be reached for comment.
Talbots -- which has struggled with a string of losses, a heavy debt burden and weak sales in the downturn -- has been working to reverse its fortunes by revamping its styles, shaking up its management and selling its J. Jill chain.
"Talbots was in a turnaround before it was in fashion," said Shawn Kravetz, president of private investment fund Esplanade Capital, at the Reuters Investment Outlook Summit. "In March, Talbots was legitimately in danger, I think, of going under."
In April 2008, the ailing retailer said two banks had decided to stop providing it with letters of credit used to back financing for merchandise overseas. Since then, it has secured several loans from Aeon to boost liquidity and pay back debt.
Talbots has managed inventory tightly, cut staff and streamlined operations as it tries to bring back shoppers over the age of 35.
Third-quarter net income from continuing operations was $15.5 million, or 28 cents a share, compared with $14.8 million, or 28 cents a share, a year earlier.
Excluding items, the profit was 30 cents a share. Analysts on average were expecting a loss of 14 cents a share, according to Thomson Reuters I/B/E/S.
Total sales fell 13.5 percent to $308.9 million, but that was slightly better than the company had expected. Same-store sales, or sales at stores open at least a year, fell 15.9 percent in the quarter.
For the current fourth quarter, Talbots expects to report a loss from continuing operations of 6 cents to 14 cents per share, excluding items, on sales expected to fall 6 percent to 8 percent.
Talbots shares soared $1.00 to $8.21 on the New York Stock Exchange at mid-afternoon. (Additional reporting by Phil Wahba and Dhanya Skariachan; Editing by Dave Zimmerman and Richard Chang)
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