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Could L'Occitane and Destination XL Group soon be part of the same family?
That's the plan of Fund 1 Investments, which on Monday revealed that it had made an offer last week to take the men's big and tall retailer private at the price of $3 a share. That represents a 34 percent premium to the retailer's closing price last Thursday.
Fund 1 Investments, which made the non-binding proposal in a letter to Lionel Conacher, chairman of the company's board of directors, already owns a 10.6 percent stake in the Massachusetts-based retailer.
Fund 1 was part of Blackstone's 6.4 billion euro takeover of cosmetic-maker L'Occitane earlier this year.
In the letter, which was made public Monday, the fund wrote: "We believe DXLG, similar to L'Occitane, would be far better served outside of the public markets, with the ability to focus on free cash flow generation without the overwhelming pressure of reporting quarterly results and satisfying the needs of short-term public market investors. DXLG stands to benefit even more because as a micro-cap stock, it lacks trading liquidity and is unable to attract a quality institutional investor base."
The letter went on to say that although Destination XL is "a leading retailer in the space," the issues it faces "are hindering DXLG's ability to maximize its potential value for stockholders. We believe the company would be better served outside of the public markets, and believe that our proposal offers stockholders an opportunity to derisk their investment at a premium valuation, providing an attractive liquidity option and certainty of value."
Fund 1 detailed its offer in the letter as well, saying that it is proposing to acquire all the issued and outstanding shares of the company, would work to retain existing management through "competitive compensation, strong benefits package and an equity or equity-like incentive plan," and work to assist the company in its go-forward strategy.
Fund 1 said it would fund the transaction through a combination of debt and equity and would seek to complete due diligence and an execution of the deal within 45 days.
Destination XL's management did not immediately respond to requests for comment Monday morning. However, the company's stock price was up more than 14 percent on the NASDAQ exchange Monday.
In its third-quarter results posted in late November, Destination XL reported a net loss of $1.8 million, or 3 cents a diluted share, compared to net income of $4 million, or 6 cents a diluted share in the same period last year. Total sales fell 9.8 percent to $107.5 million from $119.2 million in the prior-year period. Comparable-store sales fell 11.3 percent.
At the same time, Destination XL revised its full-year guidance and now expects sales for fiscal 2024 to be at the low end of previous guidance, or about $470 million. Adjusted EBITDA guidance was also brought down, to 4.5 percent to 6 percent, while sales for the fiscal year are now expected to reflect a comparable sales decrease of about 10 percent.