The Talbots, Inc. (TLB)

Don't tell anyone....but the manikins at Talbots have no clothes! Talbots has borrowed Frosty's magic top hat to appear to produce something from nothing. I suspect he will want his hat back soon now that the snow is falling heavily, at least in the Northeast. Talbots will hold the magic hat while the 80% shorts stumble to cover and it might razzle and dazzle a few more investors who are gullible and can't count. The share price may fluctuate upwards slightly from here, but the smoke and mirrors will eventually clear. Yes, Talbots pulled a slight profit this past quarter, but still expects a loss overall. Despite what appears to be a reduction of debt at excellent terms, the terms are at least 20% dilution and Talbots remains with negative net tangible assets

If anyone else issued 25% more shares their stock price would tank accordingly. IN this case Talbots has pulled it off and is enjoying a huge premium.....so far.

The merger with a blank check company, BPW should raise some flags. What's in it for them? About 65% of Talbots shares. Japanese investors and Aeon is the winner here, getting back the money it loaned Talbots at even dollar, compared to the chance that Talbots wouldn't have found sufficient footing to pay them back for several years, or worse at a reduced rate if the economy continues to languish.

Would Aeon be willing to part on even dollar if they thought Talbots was a turn around story? Would BPW be willing to be bought out if they thought Talbots was a turn around story when they already had a strong holding? Both are allowing this to happen because the risk to each is GREATER if Talbots is left to continue in it's current footprint. Neither is after further gain, (though BPW is hoping for some). Both are trying to protect what they currently have and are scared the rabbit will take back the top hat if this type of deal wasn't done.

So lets see. 55 Million shares outstanding now. Retire about 30 Million that AEON holds. Sounds good so far.
Then issue a yet to be determined quantity, but based on a 65% ownership, about 45-50 Million shares to BPW for a total of at least 72 Million shares plus warrants. Granted, debt becomes less of an issue, but spread Talbot's meager margins and potential profits across 25% more shares and your EPS, if there is a profit, is marginalized. Balance paying down the debt against the new shares issued and you might not be that bad off. Factor in that the company you bought to do this now owns about 65%, the loss of board control, etc, and it's hard to say where you will be. In the reverse scenerio, when a private firm buys out a public firm, in most cases, (granted not all), the best is gutted and the rest left to flounder. IN this case, the same thing appears to be happening, except the public firm is buying the private firm. The end result is questionable at best and far from worthy of reward by the shareholders.

Talbots remains in serious trouble with little upside in the short run. When shorts cover and Frosty takes his top hat back, barring a huge upside in the economy, (even then, where it's predicted consumers will stay frugal), Talbots has no where to hide.