Ousted CEO may bid for Children's Place

(Fortune) -- Ousted Children's Place Chief Executive Ezra Dabah said he has hired Bear, Stearns & Co. to advise him on a potential acquisition of the company in combination with unidentified private equity or strategic partners.

The disclosure, made Monday in a Securities and Exchange Commission filing, confirms a report by Fortune on Friday that Dabah was considering a bid.

Dabah and his wife Renee own 17.9 percent of the Children's Place (Charts) outstanding common stock, according to the filing. In discussing his reasons for exploring an acquisition, Dabah, in the filing, said he and his wife were concerned "about the future of the company and a possible decline in shareholder value." Dabah also did not rule out the possibility of supporting a third party's proposal for the Children's Place.

The Children's Place stock has tumbled 64 percent over the past 12 months, as the company faced a series of problems, including an investigation into options backdating and accusations that it breached a contract with The Walt Disney Company (Charts, Fortune 500) to run 328 Disney Stores.

The most recent investigation into whether Dabah followed proper disclosure rules in the holding and trading of certain securities resulted in his resignation on Sept. 24.

Dabah opened fire on the board last week with a letter that suggested his ouster was a power play on the part of certain directors. He also accused the company of disparaging his integrity. Children's Place chairman Sally Frame Kasaks issued a statement on Friday saying the board disagrees with Dabah's assertions.

A potential hurdle for any Dabah-led bid is the Disney agreement. A clause in the contract allows Disney to vet potential Children's Place suitors based on whether they are considered qualified bidders. So far, Disney has not been happy with how the Children's Place managed its stores under Dabah's leadership. This summer the entertainment giant accused Children's Place of breach of contract. To resolve the dispute, Children's Place agreed to invest $175 million to remodel 234 Disney Stores over five years.

Tensions between Dabah and the board erupted after the company's auditor Deloitte & Touche threatened to withhold approval of financial reports if Dabah remained in his post, two sources said. Deloitte & Touche on Thursday said it would not stand for re-election as the company's auditor. Late Monday the company said that it has hired BDO Seidman as its new auditors.

The Children's Place, which has not filed a quarterly report with the Securities and Exchange Commission since June 2006, said it is in discussions with a nationally recognized accounting firm, which it expects to engage shortly.