Why is Children's Place's stock soaring? Two Saudi entities have built a majority stake.

By Ciara Linnane

Troubled retailer will hold talks seeking financing, and says the move has put it into default on its credit agreement

The Children's Place Inc. has received notice from Saudi investing firms Snowball Compounding Ltd. and Mithaq Capital that they have built a 54% stake in the company and plan to nominate 11 people for election to the board at the 2024 annual shareholder meeting.

The news sent the stock (PLCE) of the troubled retailer up more than 92% on Thursday and put it on track for its biggest-ever one-day percentage gain.

Stock movement was choppy earlier, as investors also weighed the news that the unsolicited acquisition of the majority stake has triggered a Change of Control clause that is causing Children's Place to be in default on its amended and restated credit agreement.

"The company is in discussions with its lenders to seek a waiver of the Event of Default," it said in a statement.

The company said in the statement that it intends to accept Mithaq's request to enter into discussions on financing that would help with the company's liquidity needs.

The news comes just days after Children's Place issued a profit warning for the fourth quarter and said it was working with lenders to secure new financing, news that sent its stock to a 21-year low.

The company said it would consider its strategic options if it failed to secure the funds needed to support operations.

The loss reflected pressure on margins resulting from discounting to maximize sales, as well as higher shipping costs as customers buy fewer items spread over several shipments.

Children's Place is parent to brands including Gymboree, Sugar & Jade and PJ Place. The company has more than 500 stores in North America and wholesale marketplaces and distribution in 16 countries via six international franchise partners.

Monness Crespi Hardt downgraded the stock to neutral from buy last week, citing "continued execution missteps," as well as new liquidity concerns.

"While management did not comment on expectations for fiscal 2024, we expect the company will lose money in the first half and need to build working capital ahead of the back-to-school season," analyst Jim Chartier wrote in a note to clients.

The stock has fallen 41% over the last 12 months, while the S&P 500 has gained 20.7%.

-Ciara Linnane

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02-15-24 1047ET

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