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Perfumania Holdings, Inc. (NASDAQ:PERF) and Parlux Fragrances, Inc. (NASDAQ:PARL) announced today that they have signed a definitive merger agreement under which Perfumania would acquire all of the outstanding shares of Parlux in a transaction valued at approximately $170 million, based on Perfumania’s closing stock price of $19.55 per share on December 22, 2011.

Based on that Perfumania stock price and depending on the stockholder elections described below, the merger agreement values a share of Parlux stock at between $7.91 and $8.55, assuming no adjustments under the merger agreement other than such elections. Parlux’s closing market price on December 22, 2011 was $3.40 per share, and there were 20,769,362 shares of Parlux common stock outstanding on that date. Parlux stockholders will be entitled to elect between mixed stock and cash consideration and principally stock consideration under the merger agreement. The actual value of the per-share merger consideration payable to a stockholder will vary based upon the market price of Perfumania’s stock when the merger closes, as well as the stockholders’ elections and adjustments provided for in the merger agreement.

PARL Stock has traded as high as $6.60 during today’s trading session and last traded at $6.19 for a 78.39% gain from Friday’s close! PERF stock, on the other hand, has taken a massive hit as it trades at the low of the day at $14.51 for a loss 0f 26.35% from Friday’s close! Get my next ALERT 100% FREE

Perfumania is a national, vertically integrated wholesale distributor and specialty retailer of designer perfumes and fragrances. Parlux is a manufacturer and international distributor of prestige fragrances and beauty related products and is one of Perfumania’s largest trading partners. This strategic transaction, which is expected to create a more efficient and competitive company that would provide greater value to stockholders and better service to the parties’ customers, has been unanimously approved by the independent committees of the Boards of Directors of both companies. It is subject to customary closing conditions, including Hart-Scott-Rodino clearance and approval of the stockholders of both companies, but is not subject to any financing condition. The merger is expected to close in the first half of 2012.

Mike Katz, Perfumania’s President and Chief Executive Officer, said, “The combination of Perfumania and Parlux is a major step toward building a more significant and financially stronger designer fragrance and beauty products company. Parlux brings a wealth of products and expertise as a licensee, manufacturer and international distributor.”

Fred Purches, Parlux’s Chairman and Chief Executive Officer, said, “The Parlux management team and Board of Directors are focused on maximizing value for stockholders. This combination achieves that objective by providing our shareholders with a significant premium over the current trading price for their shares as well as the ability to participate in the anticipated growth of a significantly stronger, combined company that is well positioned to deliver long-term value to stockholders and a broader range of product to its valued customers.”

The definitive agreement was reached after extensive negotiations between special committees of independent Board members of both companies, which retained independent financial advisors. Under the merger agreement, Parlux stockholders may elect to receive, for each share of Parlux common stock that they own, either (i) $4.00 in cash plus 0.20 shares of Perfumania common stock or (ii) .53333 shares of Perfumania common stock, both of which are subject to certain adjustments in the merger agreement. The maximum amount of cash that will be paid as merger consideration is $61,895,288, and the maximum number of Perfumania shares issuable in the merger is 5,919,052, which amounts are subject to adjustments in certain circumstances as provided in the merger agreement. If Parlux stockholders elect, in the aggregate, to receive more Perfumania shares than the maximum, those who elected to receive all shares will receive a proportionate amount of the maximum available Perfumania shares plus cash for the shares elected but not received.

Financing for the cash portion of the merger consideration and transaction-related expenses is expected to be provided by a combination of additional borrowing of up to $43 million under Perfumania’s senior secured credit facility and, on a subordinated basis, of $30 million from family trusts of the Nussdorf family.

Under the terms of the merger agreement, Parlux may solicit acquisition proposals from third parties for 30 days from the date of the merger agreement and may at any time respond to unsolicited proposals that the Parlux Board of Directors determines are reasonably likely to result in a superior proposal. The merger agreement provides Perfumania a customary right to match any superior proposal.

Following the merger, the Nussdorf family, members of which are the beneficial owners of approximately 82% of Perfumania’s outstanding shares and 11% of Parlux’s outstanding shares, are expected to continue to own a majority of Perfumania’s outstanding shares.

Wells Fargo Securities acted as financial advisor to Perfumania’s management, while Financo Securities, LLC acted as financial advisor to the special committee of Perfumania’s Board of Directors. Edwards Wildman Palmer LLP and Carlton Fields are legal counsel to Perfumania and its special committee, respectively. Financial advisor to the special committee of Parlux’s Board of Directors was Peter J. Solomon Company, and American Appraisal Associates, Inc. rendered a fairness opinion to the special committee. Squire Sanders & Dempsey (US) LLP is legal counsel to Parlux’s special committee.