Strange that $150mm Sycamore loan agreement not executed yet
Felt compelled to chime in here.
Sycamore purchased 8% of ARO last Sept for $54mm. At the time, The Deal reported "But unlike activist investors, who would push for changes at the company, Sycamore is ultimately looking to buy, someone close to the situation said."
Yet the $150mm loan agreement announced 7 weeks ago has not yet been executed/signed. ARO said on Apr 30 "our transaction with Sycamore Partners continues to proceed as planned".
Either one of two things are occurring:
1) Sycamore is angling for a better deal (more warrants or a lower strike, or a higher rate on the $150mm loan). I don't see the investment as currently structured as worth Sycamore's time: their upside on 12% of the company and a home run would be a ~3x return which would be max $200mm. Not sure that's sweet enough for them.
If this happens, this is obviously an incremental negative (near term) for public shareholders (dilution etc).
2) Or Sycamore is negotiating a full buyout of ARO. Frankly this is what I prefer as a public shareholder and what makes more sense. Sycamore captures more of the margin upside from their sourcing agreement with MGF (The Deal: "According to industry sources, the deal with MGF is accretive to Aeropostale because it will cut the company's apparel production costs.") Also, Sycamore can likely negotiate more flexible lending terms (eg PIK) that ARO could not get as a standalone public company. Sycamore could make $1.5bn in home run scenario.
ARO's results have been atrocious, recording over $100mm in negative EBITDA last yr. But liquidity position is OK - ended the fiscal yr with $100mm in net cash and a $230mm undrawn revolver. Run-rate savings from cost savings is $30-35mm, w/ $25-40mm cash expense this yr. After Q1, cash position will be down substantially, perhaps in the $35-45mm range (w/ the $230mm revolver still undrawn).
Given just 2 yrs ago ARO was doing $150mm+ in EBITDA, the free cash potential is prodigious..
Confused but optimistic.
Just pointing out that that is meaningless. A declining stock w/ no institutional ownership turnover could arguably be negative, would imply no institutional 'buying power' left.
I believe enough in leaky markets to fear that someone knows something - this stock is trading far too poorly especially in light of improving performance reported by competitors (Gap) - worst fear is the Sycamore loan commitment is not coming through and the company is doing an emergency PIPE to shore up finances through restructuring.
Or alternatively, given the low liquidity, a top holder has taken the shares down in a desperate effort to clean up his/her portfolio and is price insensitive. Though I fear the former rather than the latter.