Sycamore Partners to take Hot Topic private for $600 million

Thu Mar 7, 2013 4:00pm EST

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(Reuters) - Private equity firm Sycamore partners will take teen apparel retailer Hot Topic Inc HOTT.O private in a $600 million deal, adding to a retail portfolio that includes Talbots Inc.

Sycamore, founded by retail industry veteran Stefan Kaluzny in 2011, will pay $14 per share in cash, a 30 percent premium to Hot Topic's Wednesday close on the Nasdaq.

Hot Topic shares rose almost 30 percent to a six-year high of $13.95 in morning trade on the Nasdaq on Thursday.

Sycamore Partners acquired women's apparel retailer Talbots for $193.3 million last year and is in negotiations to acquire Australian surfwear company Billabong International Ltd (BBG.AX) for $586.6 million.

Kaluzny is a former retail specialist at the well-known PE firm Golden Gate Capital, and has previously served on the boards of retailers Zale Corp ZLC.N, Apogee Retail and Eddie Bauer.

Apparel chains such as Hot Topic that cater mainly to teenage shoppers have struggled with a sales slowdown as its core customer base has much less discretionary income in a weak economy.

California-based Hot Topic, known for its music and movie merchandise, saw unprecedented demand for apparel based on the Twilight movie series in 2009, helping it post its biggest full-year revenue of $761.07 million and making it one of the top performers in the teen retail industry that year.

However, sales have been on a gradual decline since then and the company reported 2012 sales of $697.9 million.

Hot Topic's revenue in the past three quarters have missed Wall Street estimates.

Hot Topic Chief Executive Lisa Harper and top shareholder Becker Drapkin Management LP have signed agreements indicating they support the deal, Hot Topic said in a statement.

Harper and Becker Drapkin together hold about 8.9 percent of the Hot Topic shares.

Guggenheim Securities is advising Hot Topic on the deal while Cooley LLP is its legal adviser.

Sycamore is being advised by BofA Merrill Lynch.

(The story corrects paragraph 5 to say Stefan Kaluzny is no longer a director at Zale Corp, Apogee Retail and Eddie Bauer.)

(Reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das and Don Sebastian)

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