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* Deal at 23 percent premium
* Deal allows company 40-day go shop period
* Rue21 shares up 23.2 pct premarket
By Greg Roumeliotis and Siddharth Cavale
May 23 (Reuters) - Private equity firm Apax Partners LLP has agreed to acquire rue21 Inc for about $1.1 billion, attracted by the teen-apparel retailer's growth and cash flow and keen to add to a retail portfolio that includes Cole Haan and Takko Fashion.
Rue21 said on Thursday that Apax, whose old funds already own a 30 percent stake in the company, will pay $42.00 per share in cash, representing a premium of 23 percent to its Wednesday close. Shares of the company jumped to $41.90.
"The Rue21 deal confirms that private equity remains very active in the specialty retail space", Jefferies analysts wrote in a research note on Thursday. On April 25, the analysts had highlighted the company as a potential takeover target.
In March, private equity firm Sycamore Partners agreed to buy apparel retailer Hot Topic Inc for about $600 million while in February Apax completed its acquisition of Nike Inc's handbag and shoe brand Cole Haan for $570 million.
Rue21 has been expanding aggressively, opening 125 stores in fiscal 2012 and aiming to open its 1,000th store in the fourth quarter of 2013 and eventually cross the 1,700 store mark. It has been generating enough free cash flow to buy back shares.
Apax is paying about 20 times rue21's 12-month projected earnings per share, compared to a 14 times average for rue21's peers, according to Thomson Reuters data. It will invest using buyout funds that do not currently own a stake in the company.
The retailer said it has set up a special committee of independent directors to solicit and evaluate higher bids during a 40-day go-shop period. Two Apax dealmakers who sit on rue21's board recused themselves from the deliberations.
This is because around 30 percent of the company is owned by funds managed by Saunders Karp & Megrue, a New York-based private equity firm that merged with Apax in 2005. The company said the termination fee of about $10 million to be paid to Apax, were the private equity firm to be outbid, was low.
The special committee is being advised by Perella Weinberg Partners, as financial adviser, and Kirkland & Ellis LLP and Potter Anderson & Corroon LLP, as legal advisers.
Apax was advised by J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Goldman Sachs. Simpson Thacher & Bartlett LLP and Richards, Layton and Finger, P.A. acted as legal advisers.