J. Crew Group Inc. agreed to settle a lawsuit over its proposed $3 billion takeover by private- equity firms TPG Capital and Leonard Green & Partners LP, and will spend another month seeking competing offers.
J. Crew will extend the period to solicit competing offers until Feb. 15, according to a statement today from the New York- based clothier. J. Crew originally had until Jan. 15 to find other offers. The agreement also will include a $10 million payment to plaintiffs.
Shareholders had filed complaints questioning whether Chief Executive Officer Millard Drexler, who began negotiating with the buyout firms months before the deal became public, got a fair price from TPG and Los Angeles-based Leonard Green. The deal still requires investor approval, and J. Crew plans to hold a shareholder vote March 1.
The parties agreed that TPG and Leonard Green would accept a smaller $20 million payment if J. Crew accepts a competing offer. The original $27 million fee, equal to about 1 percent of the purchase price, was already lower than the typical breakup fee. TPG and Leonard Green offered $43.50 a share for J. Crew on Nov. 23.
“I don’t expect competing bids, given that the offer is full and the valuation is more than fair,” said Randal Konik, managing director of New York-based Jefferies & Co. He recommends holding the stock. “It’s interesting that there are all these lawsuits, but to me the stock would be in the 20s right now if there was no deal.”
Other Suitors?
Sears Holdings Corp. and Urban Outfitters Inc. studied possible offers, people familiar with the matter said this month. Most go-shop periods don’t result in rival bids.
J. Crew fell 39 cents to $43.43 at 4:15 p.m. in New York Stock Exchange composite trading.
Delaware Chancery Court Judge Leo Strine still must give final approval to the settlement, which resolves six consolidated cases in that court, according to court filings.
“The settlement has fixed a horribly flawed sales process as well as anyone could,” Stuart Grant, one of the lawyers for J. Crew investors who sued over the buyout, said in an e-mailed statement.
TPG, based in Fort Worth, Texas, previously owned J. Crew, and hired Drexler in 2003 to run the company. He has said he will stay as CEO if the buyout offer succeeds.
Fourth-Quarter Numbers
J. Crew investors alleged in the suits that Drexler and other company executives, who stand to make millions of dollars off the buyout, failed to properly shop the company around to get the highest bid. They asked Strine to block the deal.
Shareholders’ lawyers negotiated an extension to the period when J. Crew can consider other offers, so that potential bidders would have access to fourth-quarter sales numbers, Grant said. Those numbers, which include Christmas sales, won’t be ready until Jan. 31, he said.
“Hopefully, those numbers will generate another bidder,” Grant said.
The offer for J. Crew was the largest of the 77 deals in the retail apparel industry last year, according to data compiled by Bloomberg. In the nine deals for which data are available, bidders paid a median of nine times earnings before interest, taxes, depreciation and amortization. TPG and Leonard Green’s offer implied a multiple of 8.1.
The case is In Re J. Crew Shareholders Litigation, 6043, Delaware Chancery Court (Wilmington).
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