J. Crew Group (JCG) was nearly 17% higher Tuesday morning thanks to rumors of a potential buyout.
The Wall Street Journal (subscription required) reported that a pair of private equity firms are closing in on a deal to purchase J. Crew for $43.50 per share cash, or $3 billion. One of the potential new owners is TPG Capital, a former owner of the company. TPG would hold a 75% stake in the company, with LA-based Leonard Green & Partners owning the remaining 25%. TPG previously owned an 88% stake in JCG in 1997.
The deal could be announced any time. Expect this deal to meet tough scrutiny from shareholders, as the plan is to keep the current management in place and one of the buyers is a previous owner. Shareholders want to make sure to get the best bang for their buck.
Reportedly, the negotiations have run into some challenges surrounding valuation along with J. Crew's desire to allow rival bidders to make competing offers. The ever-popular "people familiar with the matter" said that the deal includes a "go-shop" period that would allow J. Crew to solicit offers from others. The hopes are that the new ownership will be able to help J. Crew fight through the current retail lull. Retailers of J. Crew's ilk have had a hard time thanks to the economic crisis. A sign of this weakness is that J. Crew has decided to offer percentage discounts dependent upon how much money you spend.
Could this move be the start of a trend? The article points out that private equity firms have quite a bit of money, and they are feeling pressure to spend. We could see a glut of activity from these groups as the pressure mounts and companies continue to flounder.