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Even with the rebound in the economy, the problems at Zale (ZLC) continue. The jewelry chain has posted a string of losses over the past couple years and is having liquidity issues. Keep in mind that the company recently indicated that there may not be enough cash flow to meet the operating needs for 2010.So to deal with the situation, Zale hired investment bank, Peter J. Solomon, which has a strong background in turnarounds.
And according to a report in the Wall Street Journal (subscription required), there is already interest from several private equity groups. For example, Apollo Management offered to buy a significant stake in the equity and sell-off the operations in Canada. However, Zale rejected this.
Next, there is a deal from Sun Capital Partners. The firm will invest between $50 million to $100 million for preferred stock. There would also be a $600 million bridge loan, which will allow more time for permanent financing. And yes, it would be a heavy deal, giving Sun Capital a majority stake in Zale. But given the tough situation, Zale really does not have much leverage on any investment transactions.
Tom Taulli advises on business tax preparation and is also the author of a variety of books, including The Complete M&A Handbook
. His website is at Taulli.com.
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