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Look out Talbot's. Frosty will want his hat back.....

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December 09, 2009 – Comments (15) | RELATED TICKERS: TLB.DL

Don't tell anyone....but the manikins at Talbots have no clothes! Talbots has borrowed Frosty's magic top hat to appear to produce something from nothing. I suspect he will want his hat back soon now that the snow is falling heavily, at least in the Northeast. Talbots will hold the magic hat while the 80% shorts stumble to cover and it might razzle and dazzle a few more investors who are gullible and can't count. The share price may fluctuate upwards slightly from here, but the smoke and mirrors will eventually clear. Yes, Talbots pulled a slight profit this past quarter, but still expects a loss overall. Despite what appears to be a reduction of debt at excellent terms, the terms are at least 20% dilution and Talbots remains with negative net tangible assets

If anyone else issued 25% more shares their stock price would tank accordingly. IN this case Talbots has pulled it off and is enjoying a huge premium.....so far.

The merger with a blank check company, BPW should raise some flags. What's in it for them? About 65% of Talbots shares. Japanese investors and Aeon is the winner here, getting back the money it loaned Talbots at even dollar, compared to the chance that Talbots wouldn't have found sufficient footing to pay them back for several years, or worse at a reduced rate if the economy continues to languish.

Would Aeon be willing to part on even dollar if they thought Talbots was a turn around story? Would BPW be willing to be bought out if they thought Talbots was a turn around story when they already had a strong holding? Both are allowing this to happen because the risk to each is GREATER if Talbots is left to continue in it's current footprint. Neither is after further gain, (though BPW is hoping for some). Both are trying to protect what they currently have and are scared the rabbit will take back the top hat if this type of deal wasn't done.

So lets see. 55 Million shares outstanding now. Retire about 30 Million that AEON holds. Sounds good so far.


Then issue a yet to be determined quantity, but based on a 65% ownership, about 45-50 Million shares to BPW for a total of at least 72 Million shares plus warrants. Granted, debt becomes less of an issue, but spread Talbot's meager margins and potential profits across 25% more shares and your EPS, if there is a profit, is marginalized. Balance paying down the debt against the new shares issued and you might not be that bad off. Factor in that the company you bought to do this now owns about 65%, the loss of board control, etc, and it's hard to say where you will be. In the reverse scenerio, when a private firm buys out a public firm, in most cases, (granted not all), the best is gutted and the rest left to flounder. IN this case, the same thing appears to be happening, except the public firm is buying the private firm. The end result is questionable at best and far from worthy of reward by the shareholders.

Talbots remains in serious trouble with little upside in the short run. When shorts cover and Frosty takes his top hat back, barring a huge upside in the economy, (even then, where it's predicted consumers will stay frugal), Talbots has no where to hide.

15 Comments – Post Your Own

#1) On December 09, 2009 at 12:00 PM, ChrisGraley (29.75) wrote:

shorted them yesterday and totally agree.

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#2) On December 09, 2009 at 12:18 PM, lemoneater (78.14) wrote:

I would add that the ladies I know 20's-60's never mention shopping at Talbots. I don't know what age demographic group they are trying to target exactly but somehow they need to encourage more buying interest. 

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#3) On December 09, 2009 at 12:18 PM, chk999 (99.97) wrote:

Good write up!

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#4) On December 09, 2009 at 12:32 PM, djkumquat (50.07) wrote:

i'm shocked by the current share price. who's buying this?!? my underperform pick for TLB has cost me 330.5 CAPS points. i still think they're going bankrupt.

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#5) On December 09, 2009 at 1:24 PM, TSIF (99.96) wrote:

Until this past quarter, do do a strange coincindence in timing with the current restructuring efforts, Talbots had not made a profit.  Selling J.Jill for $75 Million when they paid $517 for it seemed to exhuberate many investors as the $75 million was seen as a chance to starve off the creditors.  Actually the creditors don't want Talbots either!   Same store sales down 15%?  Turn around story?  Will still be left with $160 Million in debt after this deal is done. 

Djkumquant....I "try" not to down thumb "real companies" whose stock price is sub-$4 no matter what I think about them. The percent hit if investors send it skyward is a greater risk than the gain.  I'm nursing my TEN call.  I think you need to be patient for a few years on this one.  I don't see BK in the cards for awhile, but BPW may gut them. 

 

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#6) On December 09, 2009 at 7:37 PM, TMFLomax (47.99) wrote:

I wrote about this today for Fool.com and linked to your post, TSIF. I think this is all very weird and continue to wonder WHY with TLB. Looking over its history though, it's nothing if not "interesting." This time last year I really thought it was a goner.

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#7) On December 09, 2009 at 10:50 PM, Tastylunch (29.29) wrote:

Great article TSIF

I completely agree. This is a "Hunh?" kinda move. 

 

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#8) On December 10, 2009 at 2:04 AM, JakilaTheHun (99.93) wrote:

Great analysis, TSIF. 

Now see ... I'd definitely like to see blogs like this emphasized more here on CAPS :)

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#9) On December 10, 2009 at 10:47 AM, TSIF (99.96) wrote:

Thank you Alyce for the call out.  I should have included the JJill and the same store sales in my original blog, but it was a "duh, what the heck is this" reaction on my part while watching the snow accumulate up to 7".    Watching the snow fall, at least the first of the year, can be more interesting than trying to figure out why such a high percent of investors don't seem to do any homework.  As with most, if not all equities, Talbots has some loyal followings so in your various articles you certainly illicited some strong replies. 

Thanks Tasty and Jakila, there are a variety of real investment topics that the foolish community could/should be batting around. I'll try to find one occasionally even when the snow is not falling. The loyalists on some equities make it hard to have open debate sometimes.  Tossing out ones thoughts for dialogue is sometimes a time consumption that has varying degrees of return.

 

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#10) On December 11, 2009 at 3:33 PM, PaxtorReborn (29.64) wrote:

Good analysis!  Thanks TSIF

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#11) On January 02, 2010 at 10:26 PM, dragonLZ (99.38) wrote:

TSIF,

On 12/15/09, I picked TLB at $8.60 as Outperform. My 3-month target is $12.

Let's see if my TA (chart-eyeballing) beats your FA.

Good Luck in 2010!

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#12) On January 06, 2010 at 4:29 PM, dragonLZ (99.38) wrote:

3 days later, TLB is already at $10.50.

It doesn't look good for the FA...  :)

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#13) On January 06, 2010 at 4:49 PM, TSIF (99.96) wrote:

Try going at least a few weeks if you can't handle several months before trying to make an analysis on a call.  Every dog has it's day!  :)

I'll always call a dog a dog based on FA, if Mr. Market wants to eyeball charts and daydream then that will last until they wake up. It might be days or years, but sooner or later they will get awakened! 

 

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#14) On January 08, 2010 at 3:31 PM, Dobbes (< 20) wrote:

ANF is a similar situation in that they should have a much lower share price as a less-then-stellar-seller (of clothes).  They are nowhere as bad as TLB though.  Although given the choice, I think ANF is the easier underperform perform pick.  TLB is like trying to drown a waternoodle -it just keeps shooting back up and hitting you in the face.

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#15) On January 10, 2010 at 5:03 PM, Jeffsdate (< 20) wrote:

Saw something nice in Talbots' spring catalog and tried to order it online last Friday.  Despite being featured on the catalog cover and on many other pages, the item did not appear on the website.  The local Talbots store did not have it, either.  I called the catalog 800 line and had to wait TEN MINUTES on hold for on operator.  When I finally got one, she was brusque and rushed and said, "If you don't see it on the website, then I can't find it either, because I'm looking at the same website you are."  She then suggested I call Cust. Service.  (She couldn't connect me; I had to redial.)  Get this:  there was NO ONE staffing the Cust. Svc dept.!  I just got a recording saying, "No one is available to take your call at this time.  Sorry for the inconvenience."  No opportunity to leave a message or anything.  This is really an all-time low for them.  I sent a scathing e-mail to Trudy Sullivan; no response.  Can't believe they'll be in business beyond this year.

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