Dress Barn to buy Tween Brands in $157 million stock deal

BANGALORE (Reuters) - Dress Barn Inc (DBRN.O) agreed to buy teen-apparel seller Tween Brands Inc (TWB.N) for about $157 million in stock, as the women's clothing retailer looks to capture a larger share of the tween girls' apparel market.

The deal values the operator of the Justice retail chain at about $6.22 a share, representing a premium of 20 percent to Tween Brands' Wednesday close of $5.18.

The news sent Tween Brands' shares up about 32 percent to $6.83 on the New York Stock Exchange, while Dress Barn's shares rose as much as 11 percent to $14.67 Thursday afternoon on Nasdaq.

"The Justice brand is an excellent complement to our existing businesses as it diversifies us into a new and attractive demographic," Dress Barn CEO David Jaffe said on a call with analysts.

Dress Barn, which operates the namesake chain for women and the Maurices chain for twentysomethings, would now have an opportunity to reach out to tweens through the Justice label that focuses on girls aged 7 to 14 years.

Additionally, Tween Brands CEO Michael Rayden said his customers would complement Dress Barn's older clientele.

"If a Dress Barn customer is in her 40s and if the Maurices customer is in her mid-20s...those are my girls' moms," Rayden said.

Dress Barn, which expects to realize economies of scale in areas such as sourcing and real estate areas, said it sees the deal being neutral to earnings in the first full year of combined operations and adding to profit thereafter.

The women's clothing retailer said it sees "some immediate opportunities in terms of duplicative public company costs."

Although it refused to shed more light on the specifics of possible cost savings, Dress Barn's Jaffe said the company has been "extremely conservative" in its assumptions about synergies.

DEAL TERMS

Under the deal, each common share of Tween Brands will be exchanged for 0.47 shares of Dress Barn common stock.

Dress Barn will also repay Tween Brands' bank debt as part of the deal and expects the consolidated balance sheet to have over $200 million in cash and investments, the companies said in a joint statement.

"The repayment of Tween Brands Inc's bank debt immediately alleviates the financial pressures on the Justice business," Jaffe said.

Last August, Tween Brands said it would convert all its higher-priced Limited Too stores in the United States to its secondary brand, Justice, to save money.

Following the deal, Tween Brands will operate as a separate unit and its management team, led by current CEO Rayden, will continue to manage operations and lead Justice's future growth, the companies said.