The challenges that Sycamore is facing underscore the impact that choppy financing markets are having on leveraged buyouts, particularly when it comes to struggling retailers such as Chico's, which has been trying to boost sales in the face of increased competition from fast-fashion outlets such as H&M Hennes & Mauritz AB.
Sycamore has balked at putting in more money as equity in the potential deal to alleviate financing concerns for some banks, the people said this week. Chico's has a market capitalization of around $2.1 billion.
This is Sycamore's second attempt this year to acquire Chico's. The New York-based buyout firm remains interested in an acquisition and it is possible that a deal is successfully negotiated if price and financing issues are resolved, the people said.
The sources asked not to be identified because the negotiations are confidential. Sycamore declined comment, while a Chico's spokeswoman did not immediately respond to a request for comment.
Chico's shares dropped as much as 4.3 percent on the news and they were down 0.2 percent at $15.37 in afternoon trading on the New York Stock Exchange on Friday. They have dropped close to 6 percent year-to-date.
Based in Fort Myers, Florida, Chico's operates more than 1,548 stores in the United States and Canada, mainly catering to women aged 35 years and older. It also sells its clothes and accessories on the Internet and catalogs.
The company said in August it would exit its Boston Proper business as it focuses on its Chico's brand business. It reported an operational loss of $25.6 million for the 13 weeks ending Aug. 1, versus a $46.7 million operational profit in the corresponding period a year ago.
(Reporting by Greg Roumeliotis and Lauren Hirsch in New York; Editing by David Gregorio, Bernard Orr)
By Greg Roumeliotis and Lauren Hirsch