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On M&A math…

Whenever a deal is announced — and a bunch of them have been lately — there’s the inevitable press release that talks about synergies and how the deal is going to enhance shareholder value. Indeed, that’s pretty much a mandatory sentence.

But things don’t always turn out as planned when it comes to M&A, or, quite frankly a lot of other things in life. I thought about that yesterday, after reading Talbot’s (TLB) announcement that it planned to sell the J. Jill brand for $75 million to a private equity group. Needless to say, the tone was markedly different from the press release that Talbot’s put out a little over 3 years ago announcing its plans to acquire J. Jill for around $517 million.

What kind of genius does it take to turn $517 million into $75 million over the course of 39 months? What about Talbot’s advisor on the deal, which as the press release noted, was Merrill Lynch? Did they even try to raise questions about the soundness of the deal? I may be going out on a limb here, but judging by Talbot’s chart since the deal was announced, I’m guessing that shareholders aren’t buying the whole synergy thing. Here’s a snip from the 2006 release:

—Working together, we expect to capture the significant growth potential of the J. Jill brand and enhance shareholder value. We believe our proven expertise in managing a complex multi-channel operation will enable us to maximize the cost synergies of our similar business models, particularly in back-office functions.” said Talbot’s Chairman and CEO at the time, Arnold Zetcher.

Yesterday’s release was a bit more sanguine. Trudy Sullivan, Talbot’s current CEO, said that the sale would be “a significant strategic step forward for Talbots as it enables us to focus our time, resources and attention exclusively on rejuvenating our core Talbots brand and return to profitable growth.” Needless to say, there was no mention of enhancing shareholder value. Or, for that matter, synergy.

From a shopper’s perspective, this deal seemed doomed from the start. Once upon a time, I used to get J. Jill catalogs and shop at their stores, which didn’t feel quite as frumpy (or suburban) as other stores appealing to my so-called demographic. But some time ago — I don’t remember exactly when though my guess is sometime within the past three years — J. Jill lost what I’d describe as its edge and the stuff looked like more expensive versions of what you could find at Target (TGT).

It would be nice to think that as M&A starts to come back, some of the talk about synergy and shareholder value gets tempered by examples of what happens when good mergers turn bad. After all, paying an advisor a hefty fee on a deal that erases over $440 million is not a sustainable business model.

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