updated 11/12/2010 11:45:48 AM ET 2010-11-12T16:45:48

An investor in The Children's Place Retail Stores Inc. is asking the retailer's board to look at a merger or other strategic alternatives as competition in the children's clothing category heats up.

Galt Investment Partners LP said Friday that while it is generally pleased with the operational performance of the retailer over the past year or so, it feels the board may not be maximizing shareholder's value. The investment company pointed to the recent news by competitors: The Gymboree Corp. last month agreed to a $1.8 billion acquisition by asset management firm Bain Capital, and Berkshire Partners recently upped its stake in Carter's Inc.

The three children's clothing companies, Galt said, are quite comparable in terms of revenue, free cash flow generation and operational history. Applying the price being paid for Gymboree by Bain and the valuation of Carters implied by Berkshire's recent investment would put the valuation of The Children's Place shares roughly 45 to 51 percent higher than their current price. The investor said this is "far too great a premium, and far too significant an opportunity to generate shareholder value" for the company to ignore.

Galt suggests the company retain a financial advisory firm to help it identify and pursue any alternatives, including taking the company private. It also urged the board to investigate a possible merger between The Children's Place and Gymboree or Carter's.

Shares of Children's Place rose 48 cents in midmorning trading to $47.98.

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