Bloomberg News

J. Crew Said to Hold Sale Talks With Fast Retailing

February 28, 2014

J. Crew Said to Hold Sale Talks With Japan’s Fast Retailing

A J. Crew shopper in New York City. Photographer: Emile Wamsteker/Bloomberg

J. Crew Group Inc., the retailer owned by TPG Capital and Leonard Green & Partners LP, is in talks about a potential sale to Uniqlo owner Fast Retailing Co., two people with knowledge of the matter said.

The talks are at an early stage and other potential bidders have also expressed an interest in the company, one of the people said, asking not to be identified discussing confidential information. Buyout fund Advent International Corp. is also interested in J. Crew, two other people said. The retailer is weighing an initial public offering later this year, people familiar with the situation said earlier this week.

J. Crew’s priority is gaining access to funds it can use to expand, said Paula Rosenblum, a Miami-based managing partner at RetailSystems Research. An IPO would have J. Crew Chief Executive Officer Millard “Mickey” Drexler returning the company to public markets just three years after its buyout.

“They’re hot, and they obviously want to expand more so they’re looking for capital,” she said in an interview. “The debate of whether to go public or resell to somebody else is endless. Drexler does know the public markets, he’s been there before.”

J. Crew may fetch a valuation of as much as $5 billion, one of the people said earlier this week. That’s almost twice the $2.64 billion value of J. Crew’s buyout by TPG and Leonard Green three years ago.

Yanai’s Ambition

Fast Retailing, which has said it aims to be the world’s top clothing maker, has been opening Uniqlo stores overseas as sales in Japan slow. The company’s billionaire Chief Executive Officer Tadashi Yanai said in 2011 that Fast Retailing could acquire a rival in the U.S. or Europe. J. Crew offers Fast Retailing a network of 451 stores and about $2.4 billion in annual sales.

Tapping the IPO market would have J. Crew follow in the footsteps of other private-equity backed retailers. Burlington Stores Inc., which is backed by Bain Capital LLC, is up 60 percent since its October debut. Vince Holding Corp., the apparel company backed by Sun Capital Partners Inc., has gained 35 percent since its November debut.

New York-based spokeswomen for J. Crew and Fast Retailing declined to comment on the talks, which were first reported by the Wall Street Journal. A spokesman for Advent couldn’t be reached to comment.

Advent formerly owned gym wear retailer Lululemon Athletica Inc. and brought the company public in 2007. It also bought women’s retailer Charlotte Russe Inc. for $304 million in 2009, according to data compiled by Bloomberg.

Strong Debuts

Building Fast Retailing from the clothing business he took over from his father, Yanai has amassed a net worth of $17.6 billion, according to the Bloomberg Billionaires Index.

Sales at the company, which also owns the Theory brand, rose 22 percent to 389 billion yen ($3.8 billion) in the three months ended in November, according to a January statement. Theory has about 425 stores mostly in the U.S. and Japan and is sold in department stores including Bloomingdale’s Inc., Nordstrom Inc. and Macy’s Inc. Uniqlo has 17 stores in the U.S. with more openings planned and about 1,300 stores globally.

J. Crew, whose customers include U.S. First Lady Michelle Obama, has been expanding overseas, with stores in London and Hong Kong. J. Crew estimated that its revenue increased 9 percent to $2.43 billion in the year through Feb. 1, according to a regulatory filing, and forecast that its adjusted earnings before interest, taxes, depreciation and amortization rose to between $369 million and $371 million, from about $360 million a year earlier.

Buyout Lawsuit

The company operates 330 stores under the J. Crew, Crewcuts and Madewell brands in addition to 121 factory stores, the latest filing showed.

TPG and Leonard Green agreed to pay almost $3 billion for J. Crew in November 2010. Net of cash, the deal value was closer to $2.64 billion, data compiled by Bloomberg show. The takeover drew complaints from shareholders who claimed CEO Drexler didn’t get a fair price for the company.

The investors sued, alleging that Drexler and other J. Crew executives stood to make millions of dollars in the deal, prompting them to only half-heartedly seek higher bids, court papers show. New York-based J. Crew settled the suit for $16 million in addition to $6.5 million in legal fees.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Jodi Xu in New York at jxu205@bloomberg.net

To contact the editor responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net


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