The week began with the announcement of Ascena’s agreement to buy Ann Inc. for $2.15 billion. In the last ten years Ascena has evolved from a single branded company with its dressbarn label, into a holding company structure with five distinct female apparel brands – maurice, Justice, Lane Bryant and Catherines – as well as dressbarn. These brands combine to a store fleet of more than 3,900 stores and sales of $4.8 billion in the trailing twelve months ended January 24, 2015. The Ann Inc. acquisition would enable Ascena to leverage its infrastructure and shared services investments of the past few years. Ann Inc. posted sales of $2.5 billion in the fiscal year ended January 31, 2015 and its store fleet of 1,033 stores span malls, downtown, outlets and lifestyle centers. This acquisition catapults Ascena to the leadership position in the women’s apparel market while not exposing the company to meaningful cannibalization due to the sharply differentiated niche markets each brand serves spanning multiple ages, income levels and sizes.

Source: company filings and FBIC Retail & Tech estimates

The offer ($37.34 in cash and 0.68 shares of Ascena common stock in exchange for each Ann common share) came at a 21% premium to Friday’s (May 15^th) closing price for Ann Inc. common shares and was unanimously approved by both boards of directors. Approximately $150 million in annualized run rate synergies have been identified across sourcing, procurement, transportation, distribution and fulfillment as well as other areas, including the elimination of duplicative public company costs, and are expected to be fully realized by year three. During the call with investors, Ascena’s CEO, David Jaffe spoke to the two iconic labels, Ann Taylor and Loft, as appealing additions to the Ascena brand portfolio. The opportunity for each organization to learn best practices from the other is an additional plus. Ascena has made progress with its sourcing and procurement, while Ann Inc. has a strong omnichannel platform. Ascena’s extensive experience integrating previous purchases mitigates integration risk while providing comfort in the realization of the $150 million of identified annual run rate synergies. Jaffe re-affirmed the 10% operating margin goal for Ascena, supported by efforts at the individual brands as well as shared services. Ann Inc reports 1Q this Friday and in October, Ascena hosts its Investor Day. We will be there for both!