Japan’s Aeon to end Talbots role

Aeon, the Japanese retailer, has given up its 54 per cent equity stake in Talbots, the US women’s clothing retailer, as part of a buyout that will also see the repayment of $491m of Talbots debt held by Aeon and its Japanese banks.

The deal involves Talbots completing a $350m merger with BPW, a special purpose acquisitions company (SPAC) set up in late 1997, whose shareholders will take over between 60 and 69 per cent of the retailer’s shares.

The retailer has also agreed a $200m asset-based credit line from GE Capital. At the completion of the transaction it expects to be left with around $160m of debt.

The deal was announced as Talbots, which has over 580 stores aimed at affluent middle class women, reported that it had made a profit in its third quarter, after several years of losses and a drastic period of restructuring.

Trudy Sullivan, who took over as CEO of Talbots in August 2007, described the quarter as marking “a significant milestone in our turnaround,” while saying that the retailer still faced a tough trading environment.

“There’s still plenty to do. But we’re quite pleased with where we are at this stage in the strategic turnaround,” she said.

In June, Talbots sold its J Jill stores to Golden Gate Capital for $75m, three years after paying $517m to acquire the 200 store chain at the height of a wave of retail industry consolidation.

Under Ms Sullivan, a former senior executive at Liz Claiborne, the retailer has also abandoned its effort to open separate stores aimed at men and at children, reduced expenses, extended its online presence and revamped its supply chain, now handled by Li & Fung.

“We’ve pretty much changed all of our significant business processes,” Ms Sullivan said. “Fundamentally, we have transformed the company from the inside out.”

Aeon played a significant role in supporting Talbot as it faced growing problems after the Wall Street crash in September, 2008, providing direct loans and guaranteeing additional loans from Japanese banks after other banks cut the retailer’s credit lines.

“They’ve been an extraordinary majority holder and business partner,” Ms Sullivan said.

Aeon reported a Y55.5bn extraordinary loss from its investment in Talbots when it reported its 2008 fiscal year results in April.

Although same store sales were down 15.9 per cent, the retailer highlighted a significant increase in the proportion of full price, rather than discounted, sales. Ms Sullivan also noted that it had reduced is store inventory levels by 40 per cent over the past two years.

During its third quarter, Talbots reported earnings of $17.2m, or 31 cents per diluted share, excluding restructuring and impairment charges, after losing $12.4m a year ago on a comparable basis.