Women's apparel maker Ascena Retail Group Inc. will buy Charming Shoppes Inc. for $857.2-million in cash as it looks to tap into the growing U.S. plus-size apparel market.
More than a third of U.S. adults are obese, according to data available on the Centers for Disease Control and Prevention website.
"Clearly the demographics are very much in favor of the (plus-size) market," said Stephens Inc. analyst Travis Williams.
"The U.S. is increasingly growing older and overweight. From that standpoint, that market is only going to continue to grow and maybe outpace the growth of the overall apparel market."
Ascena will pay $7.35 for every share of Charming Shoppes, which specializes in plus-size clothing for women over the age of 35. This represents a 24.5 per cent premium to the stock's close on Tuesday.
In the last year, Charming Shoppes stock rose 67 per cent - more than double the growth recorded by Ascena shares.
The value of the deal was $890-million, the companies said in a statement. The deal is worth $857.2-million based on the number of Charming Shoppes shares on issue, according to Thomson Reuters data.
Charming Shoppes shares rose 24 per cent to $7.31 on Wednesday on the Nasdaq. Ascena shares rose about 14 per cent to $21.68 on the same exchange.
Suffern, N.Y.-based Ascena, which is valued at nearly $3-billion, sells clothes for women and pre-teen girls under the Dressbarn, Maurices and Justice brands. Dressbarn currently has a small presence in the plus-size space.
The deal will give Ascena access to Charming Shoppes' more than 1,800 retail stores across the United States.
Mr. Williams said Ascena will improve distribution of the acquired brands and help drive sales.
"The secret sauce here is the (Ascena) management and their ability to seamlessly integrate and then draw out value from strategic acquisitions, which is pretty unmatched in retail."
Ascena acquired the Maurices brand in 2005. In 2009, it bought Tween Brands, now known as Justice.
Bensalem, PA.-based Charming Shoppes, which has been grappling with flagging sales for four years, hired Barclays Capital in December to help it review its options.
The company's stock has jumped about 40 per cent since it began reviewing alternatives and decided to shed the struggling Fashion Bug unit to focus on its flagship Lane Bryant brand.
The company, which also owns the Catherines brand, had been losing market share to rivals such as Ann Inc. and Chico's FAS Inc.
The acquisition will be neutral, or marginally add to Ascena's earnings in the first year of combined operations, the companies said.
BofA Merrill Lynch is acting as financial advisor and Proskauer Rose LLP is the legal advisor for Ascena, which will use available cash on hand and financing commitments to fund the deal.
Ascena is also said to be interested in bidding for the Sundance Catalog, a retailer owned by private equity firms and founded by Hollywood actor Robert Redford.