Dell unlikely to delay deals; ex-Children's Place CEO a 'step backward'; analyst OKs Tween buy

By Cristal Cody

Tupelo, Miss., June 26 - A judge shot down International Business Machines Corp.'s hopes for a preliminary injunction to stop its former head of mergers and acquisitions from working for Dell Inc. while it seeks a verdict in its no-compete lawsuit.

Despite the lawsuit, Dell should have no problems making deals, an analyst told Prospect News on Friday.

Meanwhile, Ezra Dabah, the former chairman and chief executive officer of Children's Place Retail Stores, Inc., is seeking control of the retailer's board with three directors nominees, but it could be an uphill battle.

"The general view is it would be a step backward if current management failed to retain control of the board," Linda Tsai, an analyst with MKM Partners LLC, told Prospect News on Friday.

In other retailer situations, women's apparel chain Dress Barn, Inc.'s combination with preteen retailer Tween Brands, Inc. faces few concerns other than the company's limited dealings in the children's clothing market, an analyst said Friday.

Stocks ended mixed on Friday, with the Dow Jones Industrial Average down 34.01 points, or 0.40%, at 8,438.39.

The Standard & Poor's 500 index fell 1.36 points, or 0.15%, to 918.90, while the Nasdaq Composite index closed up 8.68 points, or 0.47%, at 1,838.22.

Trade secrets feud

U.S. district judge Stephen Robinson in the Southern District of New York said IBM's one-year no-compete agreement could not stop David L. Johnson from working at Dell while the lawsuit is ongoing.

Armonk, New York-based IBM filed suit against Johnson over allegations he violated the agreement after he left in May to head up Dell's mergers and acquisition strategies.

Round Rock, Texas-based Dell has about $9 billion in cash, and with Johnson's hire, market observers expect the computer maker to rev up its transactions.

Andy Hargreaves, an analyst with Pacific Crest Securities, Inc., told Prospect News on Friday that the lawsuit against Johnson should not distract Dell from deal activity.

While the lawsuit "certainly could impair their ability to have him at the forefront of deals, they have a team in place," he said. "I don't think it will have too big of an impact on their acquisition strategies."

Dell's stock added 3 cents, or 0.22%, to close Friday at $13.68.

IBM shares fell 38 cents, or 0.36%, to $105.68.

Dabah pleads case

The Committee of Concerned Shareholders of Children's Place, which collectively owns about 22.00% of the retailer's outstanding shares, urged investors to vote in favor of their nominees in a letter on Friday.

Children's Place shareholders are scheduled to meet on July 31.

Dabah pointed out in the letter that the company has been operating under interim leadership since he resigned in September 2007.

Tsai, the analyst with MKM Partners, said Friday that contrary to the dissident shareholder's assertions, the retailer is not headed for distress.

"The company, as reflected in the stock's increase, has actually done better since the current management took control in September 2007," she said.

"That said, I think the stock has been acting weak lately, partly due to the risk of the former CEO returning," Tsai said. "The current management has done a good job of streamlining the business [and] introducing more accountability into its day-to-day operations, resulting in increased shareholder value."

The Secaucus, N.J.-based specialty children's retailer operates 917 stores.

Shares closed up 6 cents, or 0.23%, at $25.95 on Friday. The stock has traded from $16.45 to $43.40 over the past year.

Working on the lingo

Dress Barn's $157 million stock acquisition of Tween Brands faces few risks, Adrienne Tennant, an analyst with FBR Capital Markets, Inc. said in a research note published Friday.

"We foresee no significant hurdles to this arrangement and believe TWB will continue to trade at a slight discount to the 0.47 conversion ratio relative to shares of DBRN," she said. "We believe the biggest risk to the transaction's ultimate success is DBRN's lack of experience in the tween market segment."

Tennant bumped the price target on Friday for Tween's stock to $6.50 from $4.00 a share.

Under the terms of the merger agreement, each share of Tween Brands will be exchanged for 0.47 shares of Dress Barn in a deal that values the stock at $6.22 a share.

The transaction is expected to close in the fourth quarter.

Suffern, N.Y.-based Dress Barn operates maurices and dressbarn shops in 44 states.

New Albany, Ohio-based Tween Brands is converting all of its Limited Too stores to the Justice preteen brand.

Tween operates 910 stores, with 867 shops now under the Justice logo, Tennant said.

The combined company will operate more than 2,400 stores.

Shares of Tween Brands rose 7 cents, or 1.06%, to close at $6.70 on Friday.

Dress Barn's stock closed unchanged at $14.41.

Mentioned in this article:

Children's Place Retail Stores, Inc. Nasdaq: PLCE

Dell Inc. Nasdaq: DELL

Dress Barn, Inc. Nasdaq: DBRN

International Business Machines Corp. NYSE: IBM

Tween Brands, Inc. NYSE: TWB

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