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Once upon a time, it seemed magical and flattering to get a buyout offer. Company executives looked successful, investors made money, and a company could have the benefit of not having to operate with a win or loss around their quarterly results. In the new world where retailers and apparel makers have such a hard time succeeding, buyout offers frequently appear to be a slap in the face with forced losses for long-term shareholders who are buried in the stock.

Chico’s FAS, Inc. (NYSE: CHS) has been among the many women’s’ and specialty retailers to see their shares get gutted over time. A recent buyout effort has also just gone from low to lower.

A firm called Sycamore Partners, which appears to be among the five largest shareholders based on up-to-date SEC data, has just lowered its offer to acquire all of the outstanding shares of Chico’s FAS to $3.00 per share from its prior offer of $3.50 per share.

This one is going to be pretty easy to predict. Chico’s FAS management was not willing to sell for $3.50 per share. Guess what a lower offer a month later is likely to generate?

What hurts so bad about Chico’s FAS is that the shares hit a 52-week low of $2.98 on Wednesday and that is down from a 52-week high of $10.44. It may just be ancient history that Chico’s FAS was a $40 and higher stock back before the great recession, but this was a $10 to $15 stock for most of the time from after 2009 to 2017.

Chico’s FAS has been seeing an erosion in sales as well. With Fiscal Year 2016 (calendar year 2015) seeing sales of $2.66 billion, that figure has come down each successive year since and was $2.13 billion in the last year. Analysts are also cautious here, and not just on the stock price, as they see revenues going down to $2.05 billion this year and down again to $1.97 billion next year. Chico’s has also been seeing declines in operating earnings and analysts expect it to be barely profitable this year and next year.

Shares of Chico’s FAS were last seen up 2.9% at $3.20, with a 52-week range of $2.98 to $10.44. Its market cap is now just $377 million and there appears to be no recent positive analyst calls with Buy or Outperform ratings that might offer its shareholders much hope.

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The Sycamore Partners SEC filing included a June 19, 2019 letter to the board of directors of Chico’s FAS. A verbatim copy of that letter is below:

Attention: David F. Walker, Chair of the Board

Dear Mr. Walker:

Chico’s FAS, Inc. (the “Company”) has declined to engage with us despite its continued poor performance. Since our prior offer on May 10th, the Company’s trailing twelve month EBITDA has fallen almost $35 million through the first quarter and management has lowered its guidance for the year. This continues a pattern of the Company lowering its guidance and then not meeting it.

Sycamore Partners is now revising its offer to acquire all of the outstanding shares of common stock of the Company to a price of $3.00 per share in cash. This represents a significant premium to what we believe the unaffected trading price of your stock would be absent takeover speculation, and it offers a compelling opportunity to lock-in certain value for your shareholders in the face of further deterioration in your business and the volatility in the market.

As described in our prior letter, we are prepared to finance 100% of the price in cash with equity from Sycamore Partners, with no third party financing conditionality. Engaging with us so we can perform our due diligence will create an attractive and certain alternative for your shareholders, which we believe is in their best interest given the Company’s deteriorating performance and share price. Your most recent full year guidance requires a significant improvement in performance trends and an increase in EBITDA of $10 million, or 25%, in the second half of the year. Should our due diligence provide us the confidence that this plan is achievable, we would be prepared to increase our offer.

If you provide us with due diligence access, we would be prepared to sign a customary confidentiality agreement with a standstill through the end of this year.

We hope that you will engage with us in pursuing a negotiated transaction.

Sincerely yours,

Stefan Kaluzny