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Galt Investments Addresses Shareholder Value Maximization Concerns with the Board of Directors of Children's Place

BOSTON, Nov 12, 2010 (BUSINESS WIRE) -- Today, Galt Investments sent the following letter to the Board of Directors of The Children's Place, Inc.

November 12, 2010 Board of Directors The Children's Place, Inc. 500 Plaza Dr. Secaucus, NJ 07094 Dear Ladies and Gentlemen: Galt Investment Partners, LP is a long-time and significant shareholder of The Children's Place Retail Stores, Inc. We are generally quite pleased with the operational performance of the company over the last twelve to eighteen months, especially that of the company's finance team led by CFO, Sue Riley, who has done a remarkable job of maintaining financial discipline and allocating capital efficiently. Having stated that, we are concerned that the Board of Directors might be missing significant opportunities to generate shareholder value, including through a value-maximizing business combination transaction.

Specifically, in the last 30 days there have been two publicly announced transactions involving your two closest competitors, the Gymboree Corporation and Carter's, Inc. In the case of Gymboree, the company has agreed to be acquired by Bain Capital, a knowledgeable and respected private equity firm, for $1.8 billion, or 10.7 times Galt's estimate of "run rate" free cash flow. In the case of Carter's, Berkshire Partners, another highly regarded private equity firm, recently disclosed that it has purchased a significant equity stake in the open market, which, based on Berkshires disclosed per share purchase price, implies a total equity value for Carter's of approximately $1.6 billion, or 11.2 times Galt's estimate of "run rate" free cash flow.

As I am sure you are aware, The Children's Place, Gymboree and Carter's are all quite comparable in terms of annual revenue, free cash flow generation and operational history. Applying the price being paid for Gymboree by Bain and the valuation of Carter's implied by Berkshire's recent investment yields a per share valuation range for The Children's Place of between $68.89 and $71.76, or roughly a 45% to 51% premium to yesterday's closing market price. This is far too great a premium, and far too significant an opportunity to generate shareholder value, for the Board and the Company's shareholders to ignore.

Clearly there is significant interest in the children's apparel and specialty apparel sectors and there would appear to be significant strategic alternatives available for the Company to maximize shareholder value in the current environment. I implore the board to do everything in its power to commence a process to immediately evaluate the value creating and value maximizing possibilities available to the Company and its shareholders. We believe, and we are certain you would agree, that it is the Board's fiduciary duty and obligation to zealously pursue all available alternatives to realize a market value for the Company that is in line with the intrinsic value of the Company, which we believe is clearly demonstrated by the recent Gymboree and Carter's transactions.

COMPARABLE VALUATION The following table illustrates the similarities between The Children's Place, Gymboree and Carter's in terms of revenue, profitability and cash on the balance sheet. The table also illustrates the substantial discount that Children's Places' stock currently trades at relative to the valuations implied by the recently announced transactions involving Gymboree and Carter's.

Gymboree Corp. Carter's Inc. The Children's Place ---------------- ---------------- ---------------- Shares Outstanding 27.5 million 57.5 million 26.2 million --------------------- ---------------- ---------------- ---------------- Annual Revenues $1.06 billion $1.7 billion $1.7 billion --------------------- ---------------- ---------------- ---------------- Trailing Twelve $150 million $135 million $150 million Month Free Cash Flow** --------------------- ---------------- ---------------- ---------------- Cash on Balance $200 million $90 million $200 million Sheet --------------------- ---------------- ---------------- ---------------- Enterprise Value Enterprise Value Paid by Bain Based on Berkshire Investment Price ---------------- ---------------- $1.6 billion $1.51 billion ---------------- ---------------- Multiple of Free Cash 10.7x 11.2x Flow --------------------- ---------------- ---------------- Implied Equity Value $1.8 billion to $1.88 billion --------------------- ---------------- Implied Per Share $68.89 to $71.76 Value --------------------- ---------------- Current Share Value $47.52 --------------------- ---------------- Implied Share 45.0% to 51.0% Appreciation equating to Recent Gymboree and Carter's Transactions --------------------- ---------------- ** Galt estimates based on the last twelve months of cash flow from operations, an estimate for maintenance capital expenditures and adjustment for any working capital abnormalities INEVITABLE CONSOLIDATION AND STRATEGIC IMPLICATIONS Given the decreasing U.S. retail growth prospects and expected increases in sourcing and raw material costs, consolidation in the children's apparel and broader apparel and specialty apparel sectors seems both prudent and inevitable.

We believe it simply makes little sense for three very similar competing companies to incur redundant senior management, sourcing, distribution, marketing and real estate management costs. Based on Galt's internal estimates, a merger between any combination of The Children's Place, Gymboree and Carter's could generate in excess of $50 million in annual cost savings and operational synergies. Based on our analysis, such a combined entity would be worth 15% to 20% more than the sum of the parts, largely as a result of synergies and cost savings that we believe could be realized in the relatively near term. Further, we believe the diversified cash flow stream created by a combined entity would enable even greater capital structure flexibility in the form of increased capacity to take on debt. A combination of all three of these companies could potentially create the most value, if such a transaction could be completed.

Galt also believes the Board should consider the potentially huge strategic downsides of being the "odd man out" should The Children's Place choose to go it alone while its primary competitors are strengthened through consolidation.

Specifically, what are the strategic implications and competitive disadvantages to The Children's Place if Gymboree and Carter's were to merge? In a similar vein, what are the strategic implications to The Children's Place if Gymboree were to subsequently be acquired by a larger competitor such as the Gap Inc. or Carter's were to be acquired by a larger apparel company such as V.F.

Corporation? RECOMMENDATIONS Galt recommends the Board do the following, if it has not already done so: Retain an investment banking or other appropriate financial advisory firm to assist and advise the company with identifying and pursuing both financial value and strategic value maximizing alternatives. Investigate and initiate contact with Bain Capital and Gymboree to discuss a possible merger of equals between The Children's Place and Gymboree. Given the massive potential cost savings and synergies, the complementary nature of the two businesses and the potential increased leverage capacity of the combined company's balance sheet, we believe Bain would be quite receptive to a potential combination of Gymboree and The Children's Place. Investigate and initiate contact with Carter's to discuss a possible merger of equals between the Children's Place and Carter's. Investigate the possibility of a three-way combination of The Children's Place, Gymboree and Carter's. Enter into discussions with established private equity firms that may be interested in serving as the financial sponsor for a "go private" transaction in which The Children's Place could serve as the initial "platform" acquisition to capitalize on future growth and consolidation opportunities in the children's and specialty retail sector.

Galt believes the Bain Capital acquisition of Gymboree and Berkshire Partners' significant investment in Carter's are the first examples of a looming consolidation wave in specialty and apparel retailing. The Board not only has a clear duty to protect and create shareholder value, but also to anticipate and stay ahead of industry trends (including investment concentration and consolidation) in order to maximize the value of the shareholders' investments in The Children's Place. We urge you to take up the issues we have raised in this letter promptly, while there remain significant opportunities available to The Children's Place, and we welcome the opportunity to discuss these matters with the Board or management if that would be helpful to you in fulfilling your duties.

Sincerely, Jeffrey F. Lick Managing Member SOURCE: Galt Investment Partners, LP CONTACT: Galt Investment Partners, LP Jeff Lick, 617-502-6560 Copyright Business Wire 2010 -0- KEYWORD: United States

North America

Massachusetts INDUSTRY KEYWORD: Professional Services

Baby/Maternity

Finance

Children

Parenting

Retail

Fashion

Specialty

Consumer SUBJECT CODE: Letter