Leonard Green to buy Jo-Ann Stores for $1.6 billion

By Nivedita Bhattacharjee and N.R.Sethuraman

BANGALORE (BestGrowthStock) – Leonard Green & Partners offered to buy fabric and crafts company Jo-Ann Stores Inc (JAS.N: ) for about $1.6 billion in cash, less than a month after the private equity firm took part in a controversial buyout of another retailer, J Crew Group Inc (JCG.N: ).

Los Angeles-based Leonard Green’s offer of $61 a share is at a premium of 34 percent to Jo-Ann’s close on Wednesday.

Jo-Ann, which competes with A.C. Moore Arts & Crafts Inc (ACMR.O: ) and privately held Michaels Stores, was not actively seeking a deal, the company’s lead director Scott Cowen said in a statement. It has until February 14 to find another suitor.

“At $60, Jo-Ann is trading at 17.4 times forward earnings… a very fair to rich valuation. I’d be hard pressed to see anyone who would want to get in a bidding war at those levels,” said Patty Edwards, chief investment officer of Trutina Financial.

CL King & Associates analyst William Armstrong agreed. “We are lowering our rating on Jo-Ann to ‘neutral’ from ‘strong buy’ as we believe there is a high probability that this deal will be completed as announced at $61,” he said.

Armstrong had a price target of $53 on the company’s stock earlier.

Jo-Ann will have to pay a termination fee of $20 million, if the company finds an alternative suitor, prior to end of the go-shop period, according to a regulatory filing.

The termination fee will rise to $44.9 million, under any other circumstances.

In November, when Leonard Green, along with the TPG Group, offered to buy retailer J Crew Group for $2.86 billion, it gave the U.S. apparel retailer a go-shop provision to January 15, but no rival offer has materialized so far.

However, that offer was clouded by the disclosure that the retailer’s chairman weighed a sale for nearly seven weeks before informing the board of discussions with suitors.

Leonard Green, founded in 1989, has about $9 billion under management and owns stakes in Neiman Marcus (NMRCUS.UL: ) and Whole Foods Market Inc (WFMI.O: ), among others.

Earlier this month, Jo-Ann Stores forecast a weak full-year profit, dampening optimism over sales and traffic trends for the holidays that has been building since the retailer announced plans to increase its workforce by 15 percent for the season.

Going private would allow the Hudson, Ohio-based company to focus on expansion and upgrading its stores away from the close scrutiny of public markets.

Jo-Ann sells merchandise used in sewing, crafting and home decorating projects. It operates 756 stores in 48 states across the United States. The deal is expected to close in the first half of 2011.

ONE IN A SERIES

The retail sector has seen a slew of private equity deals recently as buyout firms have been under pressure to spend money before their investment periods end.

Children’s apparel retailer Gymboree Corp (GYMB.O: ) was taken private recently, and there have been reports of possible private equity interest in Build-A-Bear (BBW.N: ) and Aeropostale Inc (ARO.N: ).

Centerview Partners and J.P. Morgan are serving as financial advisers and Sullivan & Cromwell LLP and Thompson Hine LLP as legal advisers to Jo-Ann Stores.

Shares of Jo-Ann closed up 32 percent at $60.19 on Thursday on the New York Stock Exchange. They touched a life high of $60.75 earlier in the day.

(Reporting by Nivedita Bhattacharjee and NR Sethuraman in Bangalore and Paritosh Bansal in New York; Editing by Don Sebastian, Prem Udayabhanu and Jarshad Kakkrakandy)

Leonard Green to buy Jo-Ann Stores for $1.6 billion