UPDATE 1-Crafts retailer Michaels makes lackluster market debut

Fri Jun 27, 2014 11:13am EDT

* Shares down as much as 2.1 pct

* Company valued at about $3.4 billion

* Was taken private in 2006 for $6 bln (Adds details, background, analyst comment, updates share movement)

June 27 (Reuters) - Shares of Michaels Cos Inc fell as much as 2.1 percent in their return to the market, valuing the biggest U.S. arts and crafts retailer at about $3.4 billion.

Michaels sells scrapbook and paper craft supplies, apparel and framing accessories, kids clothing, home and ceremony decor through its more than 1,200 stores in the United States and Canada.

The company, which was taken private by Blackstone Group LP and Bain Capital LP for $6 billion in 2006, filed for an IPO of up to $500 million in March 2012 but withdrew it after John Menzer stepped down as chief executive after suffering a stroke.

The two private equity firms reduced their stake in the company to about 80 percent from 93 percent.

The Irving, Texas-based company raised $472.6 million after its offering of 27.8 million shares was priced at the low end of the expected $17-$19.

The company's shares opened at $17 and touched a low of $16.65 on the Nasdaq on Friday.

"Investors lost enthusiasm because all the proceeds from the offering will go into paying down debt," said Jay Ritter, an IPO expert at the University of Florida.

Michaels had about $3.7 billion in debt as of May.

The company, whose product brands include Recollections, Artist's Loft and Loops & Threads, competes with Hobby Lobby Stores Inc, Jo-Ann Stores Inc and Wal-Mart Stores Inc among others.

Michaels is headed by Carl Rubin, the former chief executive of Ulta Salon Cosmetics & Fragrance Inc. John Mahoney, the former chief financial officer of Staples Inc, is a member of the company's board.

The retailer, which also offers courses in baking and beading & jewelry making, plans to open 40-45 stores this year, the retailer said in its IPO filing. (bit.ly/1jV0u1G)

Michael's net sales rose about 4 percent to $4.57 billion last year, driven by the sale of its bracelet-making kit "Rainbow Loom", a big hit with young kids.

The company said in April it was hit by a security breach of customer payment cards and about 400,000 cards were potentially affected between June 26, 2013 and Feb. 27, 2014.

J.P. Morgan and Goldman Sachs & Co were lead underwriters to the offering. (Reporting by Tanya Agrawal and Neha Dimri in Bangalore; Editing by Don Sebastian)

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