THE DEAL: Regis Explores Options

Date: 05-Aug-2010

by Demitri Diakantonis

Regis Corp. is looking to trim a few layers of debt.

The operator of the Supercuts chain announced late Wednesday that it had hired Peter J. Solomon Co. to explore strategic alternatives. "During the past year, the board and management team have taken numerous concrete steps, including reducing overhead expenses and efficiently managing working capital and international cash balances," Regis CEO Paul Finkelstein said in a statement. "In order to further enhance shareholder value, our board has now instructed our financial advisors to review the various strategic options available to the company." Although Regis did not specify it is seeking buyers, the process of exploring strategic alternatives often includes a sale. A Regis spokeswoman on Thursday declined to comment beyond the issued statement.

At least one of Regis' shareholders supports the company's decision to explore its options. Crescendo Partners chief executive Eric Rosenfeld said in a statement that Regis is undervalued and has growth potential. Crescendo sent Regis a letter last week nominating directors to the company's board. The firm did not disclose how many Regis shares it owns.

The Edina, Minn.-based company has seen a drop in sales as consumers have cut back on discretionary spending during the recession. During its fiscal fourth quarter ended June 30, Regis reported a decrease in revenue to $590 million from $625 million for the same period a year earlier. In a earnings release, Finkelstein blamed the drop in sales to longer time between salon visits for customers.

Regis has about $470 million in outstanding debt as of March 31, according to its more recent 10-Q,  filed May 10. Since the beginning of last year, Regis has undertaken several measures to raise capital. In February 2009, the company completed the sale of its Trade Secret retail division to  Premier Salons Beauty Inc. for undisclosed terms. Finkelstein said at the time that the division was losing money and Regis needed to increase its overall profitability. Trade Secret filed for Chapter 11 on July 6 and is planning on selling itself back to Regis for $45 million through a 363 sale process, according to pipeline.thedeal.com. Regis will enter an Aug. 25 auction for Trade Secret as the stalking-horse bidder.

In July 2009, Regis completed the issuance of $172.5 million in senior notes that will be due in 2014 and a secondary offering of 13.2 million shares of common stock priced at $12.37 per share. Before its effort to trim down its size, however, Regis had gone on an acquisition spree. In February 2008, it purchased the PureBeauty and BeautyFirst salon chains. In July 2007, Regis acquired Fiesta Hair Salons. Before that, in November 2004, Regis acquired  Hair Club for Men and Women Ltd. for $210 million.

Regis' biggest attempt at a deal — its $4.5 billion acquisition of Alberto Culver Co.'s Sally Beauty unit in January 2006 — was ultimately called off when the target cited concerns over Regis' poor earnings. Alberto Culver paid a $50 million breakup fee to exit the deal.

©Copyright 2010, The Deal, LLC. All rights reserved.