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Tags: J Crew | Working | Sale | Unraveling

Report: J Crew Working to Keep Sale From Unraveling

Monday, 28 February 2011 12:48 PM

J. Crew Group Inc. is concerned that shareholders may reject its $3 billion buyout and is holding last-minute meetings to convince large, institutional investors to vote in favor of the deal tomorrow, said three people familiar with the matter.

TPG Capital and Leonard Green & Partners LP, the private- equity firms trying to acquire J. Crew, were advised by a special committee of the clothing retailer’s board of directors to sweeten their $43.50 a share offer to sway skeptical shareholders, said two of the people, who declined to be identified because the matter is private. The firms held internal talks last week about raising the bid, though it wasn’t clear yesterday if they would do so, said the people.

“If they were to bump to say $46 a share, I think they could get a successful deal and 80 percent or more of the vote,” said Stuart Grant, a partner at the law firm Grant & Eisenhofer, which represents J. Crew shareholders objecting to the buyout.

Shareholders are scheduled to vote March 1 on the deal, a marriage arranged by New York-based J. Crew’s Chief Executive Officer Millard Drexler. His insistence on dealing only with TPG and keeping early talks from the board led to more than a dozen lawsuits and snubs from the top proxy adviser firms.
ISS, Glass Lewis

Institutional Shareholder Services Inc. and Glass Lewis & Co. this month said J. Crew investors shouldn’t support Drexler’s plan because the secrecy in which he shrouded the bidding may have diluted the price. For the deal to go through, a majority of shareholders not affiliated with the company or buyout group have to vote in favor in the meeting that starts at 10 a.m. in New York.

Large shareholders such as Fidelity Management & Research, Vanguard Group Inc., BlackRock Inc. and State Street Corp. met late last week with J. Crew advisers or will speak to them today, said the people. Fidelity owns about 12 percent of J. Crew, according to data compiled by Bloomberg. Vanguard, BlackRock and State Street are among the ten largest holders, the data show.

J. Crew is also trying to convince John Paulson, whose hedge fund Paulson & Co. has about a 9 percent stake, to support the deal, said the people. Paulson’s backing is seen as critical, both inside his investment fund and at J. Crew, they said.

“If you take the controversy with management, combined with the recommendations of the voting services, it makes for a much more interesting contest than ordinarily you see,” said Charles Elson, chairman of the University of Delaware’s Weinberg Center for Corporate Governance.

Mason Capital

If the funds and J. Crew are going to raise their bid, they would have to do so today before the vote.

Margot Fooshee, a spokeswoman for J. Crew, declined to comment in an e-mail.

Mason Capital Management, a New York-based hedge fund with 7.5 percent of J. Crew’s stock, is the only large investor to publicly say it won’t vote for the deal. Principal Michael Martino told the board in a Feb. 11 letter that the buyout firms should raise their price so that “all shareholders, not just those named Drexler,” are paid the fair value of their stock. Mason bought shares after the deal became public. Martino didn’t return calls seeking comment.

J. Crew shares have traded below the buyout price of $43.50 since Feb. 22, a sign some investors expect the vote to fail, according to Nancy Havens-Hasty, president of Havens Advisors LLC. Her merger arbitrage fund manager has a position in J. Crew.

Nevertheless, the spread between the stock and offer prices — less than $1 — suggests most expect the deal to win approval, since J. Crew shares would likely slide as much as $8 if the buyout firms walked away, she said. J. Crew rose 19 cents to $43.41 at 9:43 a.m. in New York Stock Exchange composite trading.

Drexler has become almost synonymous with J. Crew since his arrival from Gap Inc. in 2003. With his hands-on approach to selecting clothes, he doubled sales to more than $1.5 billion and pushed the stock up 100 percent since the company’s initial public offering in June 2006.

While the board formed a special committee to take control of the sales process, Drexler said he would only work with TPG, leading the group to forgo a search for other buyers. After the deal became public Nov. 23, the board initially had about two months to solicit competing bids, and extended that to ease investor concerns over the price.

No other deals emerged, and now Drexler stands to benefit - - if shareholders sign on. He could make more than $200 million from selling his stake while keeping some ownership in the new closely held J. Crew, according to Glass Lewis’s Feb. 17 report.

J. Crew sees the vote as a 50-50 proposition, said one of the people. Advisers at Perella Weinberg Partners LP and proxy solicitor Daniel Burch of Mackenzie Partners are counting on being able to swing some of the institutional investors to supporting the deal, said two of the people.

“It will be a tight vote,” said Grant. “The company seems to be playing a high-stakes game of roulette.”

© Copyright 2021 Bloomberg News. All rights reserved.

J. Crew Group Inc. is concerned that shareholders may reject its $3 billion buyout and is holding last-minute meetings to convince large, institutional investors to vote in favor of the deal tomorrow, said three people familiar with the matter. TPG Capital and Leonard...
J Crew,Working,Sale,Unraveling
Monday, 28 February 2011 12:48 PM
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