There have been reports that Chico’s FAS, Inc. (NYSE:CHS) is being targeted for takeover by a New-York-based private-equity firm. The company and the firm and said to have already progressed to advanced levels in their buyout talks. However, the cost of purchasing Chico’s has been cited as a potential challenge to closing a deal.
Technical analyst have identified strong buy signals in CHS.
Failed buyout
First and foremost, Sycamore Partners, which is said to be in talks to buyout Chico’s FAS, Inc. (NYSE:CHS), recently failed to close another retailer buyout. Sycamore ended its buyout talks with Express, Inc. (NYSE:EXPR) because it could not meet acceptable funding terms. Express Inc, with about $1.2 billion in market value, is a much smaller specialty apparel retailer compared to Chico’s.
People familiar with the talks between Chico’s FAS, Inc. (NYSE:CHS) and Sycamore have cited that the potential buyer is already out looking for financing to purchase Chico’s. That means that the company and the firm are close to reaching a deal.
No deal assurance
However, bearing in mind that the cost of buying out Chico’s FAS, Inc. (NYSE:CHS) could be more than $3 billion, Sycamore may have a hard time fundraising for the buyout. Even people with insider knowledge of the buyout talks have cited that there was no guarantee that the ongoing talks wound end in a deal.
Nonetheless, Sycamore has been active in the retail sector. Last month, the firm agreed to sell Stuart Weitzman, an upscale shoe brand, to Coach Inc (NYSE:COH). That deal was preceded by the $1.2 billion acquisition of Jones Group in 2014.
The rising stock market has been unfavorable for sizeable leveraged buyout transactions despite the low-interest rate environment.
Technicals
Chico’s FAS, Inc. (NYSE:CHS) has been enjoying a fine rally in the last few months as it has appreciated nearly 40%. Still the bears would take heart from the long term chart where the entire price action from the 2012 top can be seen as contained in a long term channel. The latest rally has faced initial rejection from the upper boundary of the channel this week and a failure of the stock to break above soon can result in a corrective phase.
