Nov. 23 (Bloomberg) -- J. Crew Group Inc., the New York clothing retailer, is close to an agreement to be bought by TPG Capital and Leonard Green & Partners for about $2.8 billion in cash, according to two people with knowledge of the matter.
The price would be $43.50 a share, or 16 percent more than J. Crew’s closing price yesterday, said the people, who declined to be identified because the matter is private. That compares with an average premium of about 15 percent in the U.S. apparel industry since 2005, according to data compiled by Bloomberg.
TPG, a former owner of the retailer, and Leonard Green would work with Chief Executive Officer Millard “Mickey” Drexler, the people said. Drexler may be looking to go private as J. Crew adapts to changing consumers’ tastes and deals with inventory that isn’t selling well, said Nathan Brown, an analyst at J. Crew shareholder Waddell & Reed Financial Inc.
“You’ve got too much of the wrong stuff and the stuff is still coming in,” said the Overland Park, Kansas-based analyst, whose firm owned more than 760,000 shares as of Sept. 30. “Over the next couple of quarters, the results at J. Crew have the ability to be somewhat sloppy.”
J. Crew lowered its full-year earnings forecast in August, citing “economic uncertainty.” It has been expanding with specialty boutiques in Manhattan and a bridal line.
The clothier’s stock rose as much as 22 percent at 7:45 a.m. in early trading before being halted this morning, after closing at $37.65 yesterday on the New York Stock Exchange. J. Crew, whose clothing has been worn by first lady Michelle Obama, had dropped 16 percent this year before today.
Heather McAuliffe, a spokeswoman for J. Crew, declined to comment. Drexler also didn’t respond to an e-mail. The buyout was reported yesterday by the New York Times and the Wall Street Journal.
J. Crew reported sales of $1.58 billion in the year ended January, twice its revenue seven years ago, when Drexler took over. The company, which operates 250 retail stores under brands including Madewell and 85 factory outlet locations, is scheduled to report results today.
The New York Times said yesterday that a deal could still fall apart because of a disagreement on price, with the parties initially discussing an offer at about $45 a share. TPG sought to lower that yesterday, according to the Times.
An agreement with TPG would still allow J. Crew to solicit other bids past the holidays, one of the people said.
The past five years have yielded more than 30 private- equity deals in the U.S. retail apparel industry, with an average premium of 14.8 percent. Buyout firm Bain Capital LLC agreed to pay a premium of 45.9 percent when it announced plans to buy children’s retailer Gymboree Corp. last month.
Since 2005, at least the top five retail apparel deals in the U.S. have been done by private-equity firms, led by the $2.8 billion acquisition of Claire’s Stores Inc. by Apollo Global Management LLC more than three years ago.
“We are going to see more consolidation in the retail industry, especially in developed markets where there’s a need to clear excess capacity,” Bob Parker, senior adviser at Credit Suisse Group AG, said today. “Strong growth in the future is going to come from emerging markets.”
TPG Capital previously acquired an 88 percent stake in J. Crew in 1997, according to data compiled by Bloomberg. The retailer held an initial public offering in 2006 after hiring former Gap CEO Drexler in 2003 to turn the company around.
Investors might not be so willing to approve a sale with Drexler’s history as a successful merchant at both Gap and J. Crew, Waddell’s Brown said.
“Private equity needs an exit strategy, so the minute the fashion gets good again are they going to come back to the market and sell it?,” Brown said. “Presumably they will want to sell it at a higher price, which for us as shareholders it would be great if it’s taken out 15 percent, but if it comes back at a 35 percent premium, we would have preferred to own it during that appreciation.”
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