Frederick's of Hollywood Inc., the Los Angeles-based retailer known for its racy lace and lingerie, said it has accepted a $53.4-million buyout offer from Chicago-based investment group Knightsbridge Capital Corp.
The deal, announced Sunday, would mark the end of an era for the famous merchandiser of intimate apparel.
The company was founded in New York in 1946 by the late Frederick Mellinger. Inspired by the glitz of Hollywood, Mellinger moved the company west a year later and helped to popularized innovations such as the push-up bra.
The agreement with Knightsbridge also would end Frederick's yearlong quest for a buyer.
The entire company, 50.2% controlled by a Mellinger family trust, is to be sold under an agreement in which Knightsbridge is to pay $6.14 a share for each of Federick's 8.7 million Class A and Class B shares. That price represents a 17% premium to Friday's closing price of $5.25 for Class A shares and a 29% premium for the nonvoting Class B shares, which closed at $4.75.
Those terms must be approved by Frederick's shareholders, but the company's directors support the deal and expect to complete the transaction by the end of July.
Executives at Frederick's and Knightsbridge were not available for comment Sunday.
In a statement, Frederick's said the company would be a unit of privately held Knightsbridge.
The new owners would continue to operate the company's stores and its mail-order business under the Frederick's of Hollywood name, the statement said.
Frederick's has 204 stores in 39 states, including 26 in Southern California.
The store operations struggled in the early 1990s, but sales and earnings have improved in the last two quarters.
For the six-month period ended March 1, the company had earnings of about $2.9 million, an increase of 112% over the same period a year ago.
"Many consumers perceived Frederick's as being too racy in the past," said Walter Loeb, head of Loeb Associates, a New York-based retail industry consultant. "However, Frederick's has been toning down that image."
The new Frederick's look can be found in its newer, larger stores that feature subdued lighting and a more sophisticated approach to display, industry analysts said.
However, the company needed new investment to carry out plans to redesign stores and expand further, analysts said.
Knightsbridge has a history of acquiring companies in need of capital for such expansion and operational improvements. Life insurance firms and a furniture chain are among the types of businesses acquired by Knightsbridge, which was founded in 1986 by David E. Lipson, former financial chief of Beatrice Co.
The new owners will continue to face stiff competition from The Limited Inc., which owns Victoria's Secret as well as Cacique, another intimate apparel retailer. The Limited Inc. is the nation's largest operator of specialty apparel chains. Chains such as The Limited, Structure, Lane Bryant, Bath & Body Works are among its holdings.
"Given their size and their many retail chains, The Limited has tremendous clout in negotiations with mall developers," said Ira Kalish, senior economist at the Los Angeles offices of Management Horizons, the retail consulting division of Price Waterhouse. "As a result, Victoria's Secret has an advantage in the fight for mall space. The Victoria's Secret name resonates well with consumers, particularly with teenagers."
Frederick's has been more competitive in its mail-order operations recently. The mail-order business sells lingerie, bras, dresses, sportswear, swimwear and a range of accessories.
The company is credited with pioneering front hook bras and certain types of padded bras.
In 1986, Frederick's inaugurated the world's first Bra Museum at its Hollywood flagship store. The Hollywood store attracts thousands of tourists each year.
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Frederick's of Hollywood
A look at the finances of the Los Angeles-based women's wear retailer and mail-order catalog company.
* Stores: 204 in 39 states
* 1995* earnings: $2.7 million (31 cents a share)
* 1996 earnings: $-0.44 million
(5-cent loss per share)
* 1995 sales: $142 million
* 1996 sales: $293 million
* Friday's closing price: $5.25
* Purchase price per share: $6.14
* Purchase price: $53.4 million
* Friday yield: 1.9%
* Friday P/E ratio: 44
*Fiscal year ends in August
Source: Bloomberg News