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Charlotte Russe Considers Sale

Amid increasing pressure from activist investors, retailer Charlotte Russe Holding has indicated that it will seek out strategic alternatives.


Amid increasing pressure from activist investors, retailer Charlotte Russe Holding has indicated that it will seek out strategic alternatives. The company, possibly alluding to the highly publicized offer from KarpReilly and HIG Capital, noted that it has received "potential expressions of interest" regarding a sale. The company tapped Cowen & Co. as its adviser.

The decision to pursue a sale represents an about face from the company's previous stance when faced with the KarpReilly-led proposal in November. Charlotte Russe, at the time, had introduced a new management team and insisted that its  turnaround plan would "reinvigorate growth and profitability."

KarpReilly and HIG had offered between $9.00 and $9.50 a share for the retailer, representing an enterprise value of roughly $200 million. Allan Karp, who heads KarpReilly, had previously invested in the company through his former private equity firm, Saunders Karp Megrue. Saunders Karp exited its investment in Charlotte Russe's 1999 initial public offering.

After Charlotte Russe turned away the KarpReilly offer, activist hedge fund Plainview Capital began angling for a sale, writing a letter to the company's board of directors calling its prospects for a turnaround "highly unlikely" in the given economy.

Charlotte Russe, meanwhile, in the first quarter, saw its revenues fall 9.1% to $240.7 million, and it swung to a $2.5 million operating loss. The company had posted operating income of $23.1 million in the year-ago quarter.

In a statement, Charlotte Russe chairman Jennifer Salopek noted that the decision to pursue a sale does not mean the company is abandoning its turnaround plan. "While we remain confident in our ability to successfully implement the plan and improve performance, the board is evaluating all alternatives to achieve maximum value for Charlotte Russe shareholders," she said.

As of press time, the company's stock was trading at just over $4.00 per share, representing a market cap of $103 million.

Marketwatchers, meanwhile, do not anticipate any bids will come forth that offer a premium to the KarpReilly/HIG proposal. Raymond James analyst Samantha Panella, in a research note obtained on Thomson One Analytics, cited the company's deteriorating performance and expectations for second-quarter loss in forecasting that "any potential new offer would be well below the previous range of $9.00 to $9.50 a share."

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