Teen apparel retailer rue21, Inc. (RUE) agreed Thursday to be taken private by funds advised by private equity firm Apax Partners for $42.0 per share in an all-cash deal valued at about $1.1. billion.
The deal, which is expected to close before the end of calendar 2013, is primarily subject to approval by the majority of rue21 stockholders unaffiliated with the SKM II funds, which collectively own about 30 percent of rue21.
The SKM II funds have entered into a support agreement to vote their shares in favor of the deal with Apax or even any other superior proposal.
Two rue21 directors who are partners of Apax recused themselves from Board discussions and the Board vote regarding the deal. rue21 Chairman, President and CEO Bob Fisch also recused himself from the Board vote.
"Thanks to the hard work of our associates, rue21 has generated strong top and bottom line growth both as a private company and as a public company. We are proud that a sophisticated investor such as Apax continues to believe in our core strategy and recognizes our value-generating capabilities," Fisch said in a statement.
Fisch added that the proposed deal will allow rue21 to focus on achieving its long-term objectives, including growing business to over 1,700 stores in the U.S. and successfully implementing new initiatives such as e-commerce and rueMan.
The offer price represents a premium of 23 percent over Rue's closing share price of $34.12 on Wednesday. The deal is not subject to financing.
In Thursday's regular trading session, RUE is currently trading at $41.92, up $7.80 or 22.86% on a volume of 3.46 million shares in a bid to reach the offer price.
Warrendale, Pennsylvania-based rue21 noted that the deal was approved by its board of directors based on the unanimous recommendation of a Special Committee comprised of three independent directors.
The Special Committee is being advised by Perella Weinberg Partners, as financial advisor, and Kirkland & Ellis LLP and Potter Anderson & Corroon LLP, as legal advisors.
rue21 noted that it is also running a comprehensive 40-day go-shop process to determine if there are any superior alternatives in order to maximize value for its stockholders. The go-shop process provides for a low termination fee of 1 percent or $10 million, to be paid to Apax.
Following completion of the deal, rue21 will remain headquartered in Warrendale, Pennsylvania.
Additionally, rue21 announced preliminary results for the first quarter, expecting earnings of about $44 per share on projected net sales growth of 9.1 percent, while comparable store sales is anticipated to decreased 4.6 percent.
On average, seven analysts polled by Thomson Reuters expect the company to report earnings of $0.48 per share on quarterly revenues of $233.41 million. Analysts' estimates typically exclude special items.
"This quarter rue21 was impacted by the same challenges that affected the entire industry - unseasonably cool weather, higher payroll taxes and delayed tax refunds. All of these factors affected shopping patterns and resulted in a tougher quarter than we had forecasted in terms of sales growth," Fisch added.
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