The City Chic Collective Ltd (ASX: CCX) share price is on course to end the week on a high.
In morning trade the fashion retailer’s shares are up 4% to a 52-week high of $2.55.
Why is this retailer pushing higher?
Investors have been buying the company’s shares today after it advised that it has been nominated as the “stalking horse bidder” for the e-commerce assets of Avenue Stores, which are to be sold via auction in early October.
A stalking horse bidder is the party that a bankrupt company chooses to make the first bid when selling its assets in an auction. It sets the low-end bidding bar so other bidders are unable to underbid the purchase price.
What is Avenue Stores?
According to the release, Avenue Stores was established more than 30 years ago and is a US-based specialty retailer of plus size apparel, targeting value-conscious women aged 25 to 55.
It entered into Chapter 11 bankruptcy in August 2019 and has been closing its physical store network.
As part of this process, the company’s e-commerce assets, which include a well-established customer database and inventory, have been offered for sale.
Why buy these assets?
Management believes that the acquisition of these e-commerce assets would provide City Chic with access to the significant value segment of the US plus size market.
Between January and May 2019 Avenue disclosed sales of US$75.3 million and negative EBITDA of US$0.9 million for the group. Its e-commerce sales contributed to 36% of group sales, which equates to US$27.1 million for the five months.
The release advises that the stalking horse offer for the e-commerce assets is US$10 million, which certainly looks like decent value based on its sales figures.
If City Chic is the successful acquirer, the transaction will be funded by a combination of cash and debt. The expected date of completion would be mid-October 2019.
Though, management warned that there is no guarantee City Chic will be successful in its bid to acquire the Avenue e-commerce assets. It will keep the market updated as the transaction progresses.
Should you invest?
I think that this would be a great addition for City Chic and thus I’m not surprised to see its shares race higher today.
However, it might be worth waiting to see if the company is successful with its bid before considering an investment.
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