Tarrant Cancels Qorus Deal

Tarrant Apparel Group terminated its letter of intent with a Florida-based company to buy all the shares of a Tarrant subsidiary and turn it into a public corporation.

The reason for the termination was that Tarrant’s stock price more than doubled following the announcement of the deal in late April. “It ended up being too expensive,” Tarrant Chairman Gerard Guez said. What buoyed the company’s stock price was news that it had broken even in the first quarter and had affirmed its target to earn $9 million to $11 million in net income in 2005.

Guez added that, in the weeks following the announcement of the non-binding agreement on April 26, institutional investors also showed resistance to the deal.

“They felt that it was better to keep the company as a whole,” he said. “We are [now] going to continue to own 100 percent of [the subsidiary], which is not so bad.”

Effective June 16, the cancellation of the deal scotched the agreement between Los Angeles–based Tarrant and Qorus.com Inc. to hold a reverse merger for Tarrant subsidiary Private Brands Inc. Private Brands owns or controls the distribution of branded apparel lines including American Rag Cie and licenses with celebrities Jessica Simpson and Beyonceacute; Knowles.

In a reverse merger, a dormant publicly traded corporation called a shell company buys all the shares of an active private company. The public company issues enough stock to the private company so that the private company ends up owning at least 90 percent of the public company.

If the deal had gone through, Qorus shareholders would have held 3 percent of the combined company and the remaining 97 percent would have belonged to Tarrant. In a conference call between Tarrant and analysts in May, some investors urged the company to spin off at least a portion of that to existing shareholders.

Kevin Keating, president of Qorus in Vero Beach, Fla., said Qorus had no issues with the deal and that it was Tarrant that exercised its right to cancel. He said no penalty was paid for stopping the transaction.

Keating recently completed a reverse merger with Antik Denim, a high-end denim label started last year by Blue Concept Inc. Blue Concept is owned by Guez’s brother, Paul. Keating said he is a director of that new company, now called Blue Holdings Inc. and based in Commerce, Calif.

Private Brands currently designs and manufactures American Rag Cie merchandise, which is sold exclusively at Federated Department Stores Inc.’s Macy’s; Alain Weiz plus-size apparel, which is distributed exclusively by Dillard’s Inc.; and the Gear 7 collection for boys and young men, which is distributed exclusively through Sears Holdings Corp.’s Kmart.

During the May conference call, Tarrant said that in 2005 it expects to generate $60 million to $70 million in revenue for Private Brands and $175 million to $185 million in revenue for its private-label business. Tarrant said it plans to double the number of Macy’s stores where American Rag will be sold to 300 in the fall from a year ago. It also said Gear 7 will be in all Kmart stores and that Alain Weiz, currently in 150 Dillard’s stores, is being considered for a misses-size range later in the fall. The collections licensed with Simpson and Knowles will begin shipping in the fall.

In a recent research note, Los Angeles– based investment banking and brokerage firm Wedbush Morgan Securities said the addition of new Private Brands apparel lines could significantly boost Tarrant’s revenue growth over the next three years.Khanh T.L. Tran