Tarrant Apparel Founder Wants to Take the Company Private
After years of being a publicly traded company, the two top executives in Tarrant Apparel Group want to convert the company into a private entity.
Gerard Guez, who founded Tarrant Apparel in Los Angeles in 1985 as a blue-jeans manufacturer, and Vice Chairman Todd Kay announced on April 28 that they would like to buy the remaining shares they don’t already own. Together, the long-time business colleagues own 51 percent of the company, whose market cap is $23.4 million.
They propose to buy the publicly traded Tarrant stock for 80 cents a share, a 14 percent increase above the price the NASDAQ-listed stock traded for on May 1.
Guez, the chairman and interim chief executive, and Kay expect the company’s board of directors to form a special committee of independent directors to consider the proposal with outside financial and legal advisers. Their ownership includes 5 million shares that may be acquired under the company’s stock-option plan with a weighted average exercise price of $4.90 a share. The two executives have advised the board they will not consider any other transaction involving their interest in the company.
Calls to Guez seeking comment on the privatization plan were not returned.
Over the years, Tarrant Apparel has had its ups and downs. In the late 1990s, it acquired several apparel factories in Mexico as well as a denim mill and twill mill that ended up costing the company more than $250 million in losses. In 1999, the company’s stock was trading close to $42 a share.
Recently, the NASDAQ sent the company a letter noting that if the company’s stock did not rise above $1 a share, it would be de-listed.
For Guez and Kay, there are several advantages to running a private company versus a public company. Public companies have to make their financial dealings much more transparent. It’s much like opening up your personal checking account to scrutiny. Each financial detail is put under a magnifying glass by investors and stock analysts. Going private gives executives more leeway in making decisions that might not sit well with investors.
“When you are public, you have all kinds of rules you have to go through in accounting and filings with the Securities and Exchange Commission, and that stuff is expensive,” said analyst Jeff Mintz of Wedbush Morgan Securities in Los Angeles. “You can take a public company that is losing money and make it a private company that makes money with the money you can save by not having to fulfill all the rules and regulations required by the SEC.”
Indeed, Tarrant has had several years when it lost millions of dollars. As recently as 2006, its net losses totaled $22.22 million on $232.4 million in revenues. In 2007, it showed a $1.75 million net profit on $243.3 million in revenues.
Tarrant sells a good deal of its merchandise to Macy’s, which accounts for 21 percent of the company’s revenues. Tarrant also makes private-brand apparel for New York & Co., Chico’s, Kohl’s, Mervyn’s and Wal-Mart. It also makes the American Rag label, a juniorswear brand it partially owns, which is sold at Macy’s stores around the country.
