LNT Believes It Will Close Apollo Buyout

Don Hogsett, January 2, 2006

Clifton, N.J. — As it neared the last hurdle potentially blocking the sale of the company, Linens 'n Things said it now expects to meet all the sales and profitability targets set by its prospective buyer, Apollo Management, as a condition for the $1.3 billion purchase of the home furnishings chain.

Linens 'n Things said in a filing with the Securities and Exchange Commission it now believes it can meet all the requirements put in place by the Apollo group as a requirement for closing the deal. It appeared to dampen weeks of negative speculation by analysts and industry observers, who doubted the retailer could sell enough goods or make enough money to get the deal done.

After the news emerged on Wednesday, Dec. 28, investors pushed the value of Linens' n Things' stock up 11.25 percent, or $2.69 a share, to $26.60. The stock continued to climb higher the following day, up another $0.37 a share, or 1.4 percent.

Coming off a vexing year, with profits and same-store sales weakening, Linens 'n Things announced seven weeks ago, on Nov. 8, that it had agreed to a sale to the Apollo group for $28.00 a share. But mindful of the risks, the retail chain's problematic history, and the vagaries of a treacherous retail environment, lenders who would bankroll the Apollo deal put a number of strings on the transaction.

Specifically, Linens 'n Things would be required to record an operating profit of at least $140 million for the 2005 fiscal year, and same-store sales that dropped no lower than six percent for the all-important Christmas quarter.

With high gas and home heating prices roiling the prospects for the Christmas quarter, and analysts fretting about several quarters of weakening sales and the challenge of competing with rival Bed Bath & Beyond, speculation had mounted in recent weeks that the retailer might not be able to get the deal done, or might have to settle for less than the original deal price of $28 a share.

Still hedging its bets somewhat, the retailer injected a cautionary note into the boiler-plate language that accompanied its federal filing setting a date for the shareholder vote. Profitability, it said, “continues to be subject to various uncertainties,” including a year-end audit and the results of its year-end physical inventory.

Analysts, however, seemed to applaud the news. After the news came out, broker Raymond James upgraded the stock to 'market perform, based on its confidence the deal will get done.

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