New private equity fund buys 9.9% of Talbots

The women's clothing retailer rose 8.4% to $3.75 soon after an investor group led by Sycamore Partners announced a 9.9% stake in the company early this week. The group said Talbots' stock is underrated and presents a striking investment.

Sycamore Partners, a new private equity firm focused on the consumer and retailer sectors, is in the process of trying to buy women's fashion retailer Talbot's, as Fortune magazine learned. As a confirmation, Sycamore disclosed in a regulatory filing that it already has acquired a 9.9% stake in the company for $21.62 million. The equity firm was advised on the Talbot's share purchase by BoA Merrill Lynch.

Talbot's currently has a market cap of around $265 million, and a buyout would be expected to be worth around $300 million. Its share price has fallen more than 55% so far this year, closing Friday at just $3.46 per share.

The filing does not explicitly say that Sycamore is seeking a majority stake, but does say that it may purchase additional shares. "This is a private equity firm, not a hedge fund," says a source familiar with the transaction. "I think that by looking at both its website and the 13D, you can draw your own conclusions."

Talbots has a potential upside of 7% based on a current price of $3.7 and an average consensus analyst price target of $3.96. Therefore, Talbots is currently above its 50-day moving average (MA) of $3.58 and should find resistance at its 200-day MA of $6.39. In the last five trading sessions, the 50-day MA has fallen 4.86% while the 200-day MA has slid 2.76%.

New York-based Sycamore was founded earlier this year by Stefan Kaluzny, a former managing director with Golden Gate Capital who had worked on such retail deals as Express and Zales.