Equity firm buying Deb Shops in $395 million deal

Private-equity group Lee Equity Partners L.L.C. is purchasing junior-girl fashion retailer Deb Shops Inc., a Philadelphia company founded as a women's hosiery store, for $395 million, the company said yesterday.

The $27.25-per-share deal requires shareholder approval and represents a small premium over Thursday's closing price of $26.68.

Deb Shops' share price fell 17 cents yesterday during regular trading, closing at $26.51, but then rose in after-hours trading to almost $27 at one point.

Marvin Rounick, Deb Shops' president and chief executive officer, said in an interview: "It's time. I'm 67 years old. . . . I think this is a great opportunity for the people here." Commenting on the offering, Rounick said: "If we thought it was a lousy deal, we wouldn't take it."

Chief financial officer Barry J. Susson added: "This is not an exit because the building is on fire."

Revenue at Deb Shops, with 337 stores in 42 states, was flat in its latest fiscal year at about $325 million. Net income for the fiscal year ended Jan. 31 fell to $21.4 million from $25.3 million in the preceding year.

Well-known investor Thomas H. Lee runs the New York firm doing the buyout, and "has the money and the track record" to make Deb Shops a success, Rounick said.

In a statement, Lee said: "Given our industry expertise in retail and our focus on post-investment operating improvement, we are excited to collaborate with Deb Shops' existing management to refresh the store operational model and to execute a new store growth plan."

Lee has a reputation of treating acquired companies kindly rather than eliminating employees and sacking management. Deb Shops' 200-employee headquarters and warehouse is near the Northeast Philadelphia Airport.

Deb Shops' board approved the proposed deal, but stockholders must vote on it, the company said. Lee Equity secured commitments of support for the deal from Rounick, executive vice president Warren Weiner, and others representing 64 percent of the common stock, the company said in a statement.

Rounick holds 3.9 million common shares, worth $106 million. Weiner owns 2.75 million shares, worth $75 million. They are the two biggest individual shareholders, according to regulatory filings.

Lee Equity also has the consent of the preferred shares held by Rounick and Weiner, Deb Shops said.