Retailers, Equity Firms Consider J. Crew Bids

Discussion
Jan 06, 2011
George Anderson

When we last visited J. Crew in November, the company had
announced it would be acquired by TPG Capital and Leonard Green & Partners
in a cash deal valued around $3 billion ($43.50 a share). At the time, 57 percent
of respondents to a RetailWire poll said the deal would be good for
J. Crew. Only 24 percent thought the deal was a mistake.

One of the key aspects
of the deal from the point of view of analysts and industry experts  was that
Mickey Drexler, CEO of J. Crew, would stay on and continue working his merchandising
magic for the company.

But almost as soon as the deal was announced, questions
were raised about Mr. Drexler’s dealing with the would-be buyers. Negotiations
between Mr. Drexler and the equity firms went on for seven weeks before he
notified J. Crew’s board.

Now, a new Bloomberg News report suggests
that the previous deal may not be done as two retailers, Sears Holdings and
Urban Outfitters, and two unidentified private equity firms are looking at
possibly submitting their own bids for J. Crew.

A bid by Sears was quickly
dismissed by analysts.

Christine Chen, an analyst with Needham & Co., told Bloomberg, “J.
Crew is positioned as aspirational and Sears is not. It would have a negative
impact on the J. Crew brand.”

Brian Sozzi, an analyst with Wall Street
Strategies who follows Urban Outfitters, said in a research note that acquiring
J. Crew would “give the eclectic
retailer a higher income customer base (less college kid more 25-35 year old),
more mall-based stores, and greater leverage over suppliers at a time of input
inflation.”

Mr. Sozzi did not think Urban Outfitters was likely to make
the deal because it would leverage the company’s balance sheet, J. Crew had
a lower return on assets and did not provide any international exposure. He
also said Urban Outfitters “has
an affinity for developing its own brands.”

Both TPG and Leonard Green
stand to profit even if another bid is eventually accepted by the retailer.
J. Crew would have to pay $27 million to the firms if their deal does not go
through.

What do you think is the ideal acquisition scenario for J. Crew? Finances aside, which management situation do you think would be most beneficial?

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4 Comments on "Retailers, Equity Firms Consider J. Crew Bids"


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Bill Emerson
Guest
Bill Emerson
10 years 3 months ago

The discussion here is really about Mickey Drexler. Where is he going to be happy working. Take him out of the equation and (with all due respect to what I’m sure is a hard-working group at J. Crew) you really don’t have much to talk about.

Sears? Let’s see, Lands’ End really flourished there, didn’t they?

Urban Outfitters? It’s a fine company doing great business. Their dilemma is holding on to the Gen Y market as it grows older and their tastes change. Is it worth leveraging their balance sheet? In these times, that’s a big risk.

The best scenario is, in my view, an equity group that Mickey gets along with (code for stays out of his hair) that brings sufficient capital to allow him to build the brand to its full potential.

Carol Spieckerman
Guest
10 years 3 months ago

The best move would be any that would keep Mickey Drexler at the helm. Mr. Drexler isn’t exactly a shrinking violet so if Sears were to acquire J. Crew, it could signal an apparel turnaround for them (especially if design genius Frank Muytjens stayed put as well). Lately, Drexler has been showing an affinity for partnering with iconic/authentic brands that complement the J. Crew brand and Sears has returned its focus on brand acquisitions and partnerships once again (including sub-leasing store space ala Forever 21) after setting a new standard in omni-channel platform-building.

We recently blogged on Sears’ Kenmore Live Studio and Craftsman Experience concepts–a visit to either will tell you that Sears and J. Crew are equally matched when it comes to ambition and contrarian thinking around brand values and brand engagement.

Mark Johnson
Guest
Mark Johnson
10 years 3 months ago

Sears continues to turn things around. They are a great real estate company that is becoming a more data-centric retailer. May be a good fit, time will tell.

Michael Tesler
Guest
Michael Tesler
10 years 3 months ago

Urban Outfitters has been featuring a partnership with J Press in its Harvard SQ window and on key fixtures in the store. J Press is a long time New Haven and Cambridge men’s shop that is as traditional as it gets, but the new merchandise that is being featured in UO is younger, hipper takes on the original and very close to J Crew in appearance and pricing. It looks to be like they are testing and learning for a reason…could it be they had a bigger J than J Press in mind when they did this?

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