Wednesday, January 5, 2011

J.Crew's Deal To Go Private {it just got more interesting}

We have been tracking J.Crew's deal to go private for some time now (click here and here). Well, it just got more interesting. The following is an article from the New York Times' Dealbook (click here to read in its entirety):
Sears and Urban Outfitters Circle J.Crew
By Michale J. De La Merced
January 5, 2011

The “go-shop” provision in the $3 billion proposed buyout of J.Crew has now attracted window shoppers.

Several retailers, including Sears Holdings and Urban Outfitters, have been studying J.Crew’s books, according to people with direct knowledge of the matter. Urban Outfitters is seriously weighing a counterbid for the high-flying preppy retailer.

J.Crew, the clothier of choice for the likes of Michelle Obama, agreed on Nov. 23 to sell itself for $43.50 a share to buyout firms TPG Capital and Leonard Green & Partners. The agreement included a “go-shop” provision that allows the company to entertain rival offers until Jan. 15.

A key part of that transaction was the support of J.Crew’s chairman and chief executive, Millard S. Drexler, who turned around the company and owns a 11. percent stake.

While keeping Mr. Drexler on board would crucial to any successful suitor, that may not be the case with Urban Outfitters, which has a well-regardeed management team. ...
There are lots of articles discussing this news including:
The way this original deal (between J.Crew and TPG Capital / Leonard Green & Partners) came about was a bit shady (with Drexler arranging a deal before notifying the full J.Crew board). No matter who J.Crew sells out to, Drexler will be making lots of money off this deal. But will he get to keep his job if it's not with TPG Capital / Leonard Green & Partners?

With that said, I am not sure how I feel about Sears Holdings or Urban Outfitters taking over J.Crew. Sears does a fine job with Lands End and Urban Outfitters does a great job with Anthroplogie, but I like J.Crew's offerings and customer service a lot more. I hate to see it change.

What are your thoughts on this latest news? Do you think Urban Outfitters or Sears would be a good match with J.Crew? Do you think going private is still the right move for J.Crew?


  1. I would love to see urban buy out JC. Dump Mickey and Jenna, refocus the brand and bring back the quality!

  2. free people and madewell are similar, i wonder what a buyout would mean for those two brands. keep frank, dump mickey and maybe jenna, too. even if they lose their jobs they'll get millions, so i don't feel sorry for them.

  3. So wait. I took economics in high school but never understood anything I learned about stocks and whatnot--can someone explain in layman's terms what all this means? Is J.Crew DEFINITELY being sold? What exactly is a buyout? Why would J.Crew do this?

    (please forgive me for being dense. My specialty is English and can't wrap my head around numbers! :) )

  4. I don't have any experience w/Urban Outfitters, & limited purchases from LandsEnd (Sears). Didn't Sears purchase Restoration Hardware just a few years ago?

    I just want unique quality items, without logo's & with solid customer service. I don't mind 'trendy' mixed in w/the classics. I like wearing something that few others are wearing w/o dressing 'out there' or weird. I also appreciate fair pricing and attainable cool/classy/pretty items.

  5. Urban is under Anthro or vice versa. Sears in the mix? All very interesting. I'm sure the econ lovers are eating this up like Days of Our Wallets.

  6. gig,

    urbn (urban outfitters inc) is the main corp. from that, the brands are urban outfitters, anthropologie, free people, leifsdottir and terrain. they were also supposed to be opening a bridal store, but idk if that would be a separate label or under one listed above that already exists.

  7. I don't feel too strongly about either of these companies taking over. I do hope that the brand can refocus its look and quality to what it meant in the late 90s early 2000s; even if this means dumping some high ups (Jenna) and/or closing a few stores.

  8. AppGal -

    TexasPacific (the private equity firm) thinks that it can earn more profit out of J Crew than the current stock price implies. So it offered $42.50 per share (I think that was the number), a price above the current trading price.

    Because J Crew is a public company (traded on the stock exchange), the board of directors have to make sure this is the best deal possible for the shareholders they represent. The only way to do that is to see what other buyers are offering which may or may not lead to a bidding war and a buy out significantly above the original offer by TPG.

    What makes this interesting is that Mickey's actions seem to represent a conflict of interest and favor management's interests and not the shareholders' interests. (Shareholders = ultimate owners of the company.)

    The company still may not be sold. It depends if the board receives an offer they can't refuse.

  9. I would like Mickey and Jenna out of JC but I don't like the idea of UO owning JC. I like some of Anthro's design but I've been much disappointed of their quality compared to price offered.

  10. I was drawn into J. Crew from the Fall 2004 catalog which happened to be the first one that really reflected Drexler's influence. I became obsessed and have been buying ever since. JC has changed a lot in the last two years and we all know the quality is nothing at all like it was then. If the company is bought and everything changes, it will be a continuation of what started somewhere around 2008/9. So I will keep my catalogs, take care of what I have, buy the few items they still have that I like and not stress about it.

    If this had happened somewhere around 2005/6, I would be so sad. Now, I'm just a little more objective about it. It could very well be that Mickey and Jenna got rich, bored or both and this deal gave them the jumping off point they were looking for.

  11. I don't know much about Urban Outfitters but Anthropologie is one of those stores where I like to browse, I buy their style and travel books and the odd trinket, but not their clothes. I like the look in the catalogs but I can't see myself in them, plus, my software role wouldn't work with the Anthropologie style at all.

  12. Thanks so much for sharing this intriguing news Alexis! Anthropologie and J.Crew are the stores I shop at most often, so in terms of customer base I imagine there's a lot of overlap that makes this an appealing deal for Urban Outfitters. I can see how J.Crew could complement UO's current brands.

    I wonder how much of their technology, such as their ERP/order fulfillment overlaps. I guess the question is first, whether UO sees this as a long term deal or if it's looking for more of a short term deal where they can learn about J.Crew's methods and such and then spin the group off.

    I also wonder about the teams. Both J.Crew and UO have management teams that are viewed positively in the industry. I wonder how the teams would mesh? Who would stay, who would go, etc.

    I am apprehensive though for a few reasons. The main pain point for me is that I've been buying less and less at J.Crew because of their quality issues. I have started to see these same issues crop up at Anthropologie and I would hate to see them get worse if there was any team or warehouse integration.

    At the risk of sounding like a snob, I would probably stop buying from J.Crew altogether if Sears bought them. That is just not a store I aspire to shop at.

  13. AppGal - as far as I can tell from the articles, here is my understanding. J.Crew has an offer from two private equity firms, TPG Capital and Leonard Green & Partners, for a buyout. That deal is not complete, however, and now two other companies (Sears and Urban Outfitters) are considering offering J.Crew their own deals. I would say J.Crew is likely to accept one of these 3 deals and therefore yes its likely being sold.

    In this case if J.Crew chooses the TPG deal they would go private. Since J.Crew is currently public, that means that anyone who owns stock in J.Crew group would be paid whatever the deal's share value is. Those shares would then disappear effectively and only private shareholders would still have a stake in the company. It's actually much more complex than that as there are different values of stock depending on what kind of shares you own, but my previous sentences are the very plain English explanation.

    The main reason why J.Crew would do this is because as a private company you are (hopefully) able to make significant changes more easily. Those changes could be employee changes, they could be operational (i.e. where they buy materials from, who designs for them, etc.) or they could just be time to review their current direction and change course if necessary. As a public company you answer to many stockholders, analysts and maybe multiple banks. As a private company, in theory you answer to fewer leaders and lenders which allows you to make decisions and take action more quickly. That's of course assuming the board of a private company is on the same page as management. :)

    Anyway, sorry for two long comments and I hope that is helpful.

  14. I know myself well enough that I'm pretty sure I'm out for good if Sears buys JC.

    I'm sorry, I know how that sounds -- I do. But there is no way the brand can survive that kind of sea change in ownership.

    I know what people are thinking, well, what about Land's End and LE Canvas? It's just not for me. Nice that the acquisition of LE has brought LE offline/out of the catalogs and into people's hands (made it more accessible) but on the whole it's still too buttoned-up for me. It's not setting trends anytime soon. And to me, LE Canvas is a copycat of JC from circa 2007, but it still falls short on style.

    If Urban buys JC, I predict the prep factor will decline sharply. It would be nice to see things evolve into an Anthro-type situation, but that kind of stopre/brand isn't cheap to feed and maintain.

    I feel sad, like a friend or relative is on their deathbed. But I should be glad -- I'll suddenly find myself with LOTS more disposable income!

  15. Calling J.Crew the clothier of choice for Mrs. Obama is stretching it. ... WWD just noted in an article this week, I believe, that J.Crew did not have a good holiday season. They're obviously not headed in the right direction as is. Hope it gets turned around and they reconsider the importance of, for starters, quality.

  16. The analyst says it better than I did. I guess 'aspirational' is a key word I need to remember!

    Sears buying the clothing chain “would be great for Sears, but horrible for J. Crew,” said Christine Chen, a San Francisco-based analyst for Needham & Co. “J. Crew is positioned as aspirational and Sears is not. It would have a negative impact on the J. Crew brand.”

  17. So, let me get this straight:
    2006: JCrew becomes publicly held.
    2007/08: Recession/retail freefall, JCrew quality standard starts to decline
    2008: Despite company cutbacks & new website issues, JCrew seems to be weathering recession reasonably well among retailers
    2010/10: JCrew looking to go private again

    It seems the likely culprit for the quality issues is pressure from shareholders to increase or maintain profit level, especially in light of the recession, not independent internal management decisions. It's actually very interesting that the company mounted a design shift from established classics to fashion-forward in this shaky economic climate, which proved successful and kept the profit margin healthy.
    It's fascinating that Mickey wants to go private again - maybe because JCrew's future plans would be deemed too risky to shareholders OR that they might want to address the nagging quality issues by going back to a higher standard (expensive) of production methods which would eat into profits.
    Anyway, if a publicly-held company buys JCrew, I don't think the quality will improve for the same reasons as above or they'd get rid of Jenna Lyons as her vision has yielded strong profits (whether you like her design sensibility or not). Mickey might be more tenuous due to the parent company's management structure, but I'd hope they would want to keep him happy.

  18. If J.Crew turned more like Anthro I would stop shopping there. I am with Elizabeth... I like their stuff but stick to buying home items occasionally. The clothes don't work for me or my job. Oh well... I stopped loving current J.Crew a couple years ago.

  19. A longer comment may follow a more thorough read- thru of what's available to the public at this point-- oh, dear me, I did not mean that as a threat, just that my day started at 4:45 a.m. eastern.

    THE FOLLOWING IS NOT FICTION OR WHIMSY. During the Christmas shopping season, I noticed that J.Press (yes, THAT J.PRESS, New Haven) has done a collection of men's clothing for Urban Outfitters. It was great-looking and I would have ordered a few things for me since I M not above borrowing from the boys when it is true and not just the repetitive drivel of a copywriter on autopilot. However the entire collection was sold out. Gone.

    I wondered at the time, why this? Why them? Why now?

    Perhaps now we know.

  20. I don't know why the J Crew board doesn't just fire Mickey and Jenna, or whoever is responsible for the mess they're in now, and go back to the original J Crew equation: high-quality preppy with a twist. I don't see other brands doing that mix as well as Crew did; their sales would improve if they rediscovered their roots. I wouldn't want Urban to buy J Crew. Anthro and J Crew are the 2 shops I frequent, and I like that they are two completely different beasts. I wouldn't want one to morph into the other. But if push comes to shove, I still like J Crew better. Much less dated than Anthro.

    And Sears buying J Crew? I used to buy Lands End more BEFORE Sears bought them out. Just not the same, lower quality. I can't see why things would be different with J Crew.

  21. Interesting news, anxiously anticipating the outcome.

    I will totally drop J.Crew if Sears buys them out. I know others like LE/LEC, but the few items I have tried did not fit me well and they didn't have the same stylish appeal as J.Crew. When J.Crew really nails an item, it is a thing to behold. I can't see that continuing under the Sears direction and the idea of buying clothes from Sears makes my stomach turn.

    I like Anthro but most of their clothing doesn't fit my lifestyle so I do buy but am really selective and admire the rest from afar.

  22. If Sears bought J. Crew, do you really think they would, well, "cross-pollinate"? I mean, it would be a smart move for Sears to buy it, but I don't know if Sears would be stupid enough to tamper with the J. Crew brand by publically associating itself with J. Crew. I hope they wouldn't be!

  23. Drexler understands aspirational brands as well anyone. He's on the Apple board. If he were to sell to Sears, I'd have to assume he's lost interest in the J. Crew brand. Maybe saying Sears will leave it alone will work, but I'd be surprised.

  24. This is horrible; I didn't get into J.Crew until this year. While many say their quality was much better in the past, I am pretty pleased with most of the recent stuff I have received.

    Does a buyout mean that change is inevitable? Are things going to start looking like they came out of American Eagle? Are J.Crew newsletters going to look like the garbage that Urban Outfitters pumps out?

  25. I've been thinking about this as I work the sweater shaver on holey piling J Crew cashmere from last year: wouldn't it be a fitting turn of events if the man who aspires to sell $800 umbrellas (Dear Leader MD) winds up working for the folks who run K-Mart?

    Like Elizabeth said, if that happens (J Crew sold to Sears), it would mean Mickey is no longer interested in J Crew. Because I think he is too much of a snob to work for Sears.

    I'm a little sad if any of this happens -- I love J Crew!

    OK back to the sweater shaver..

  26. I am not sure I 100% like the way J. Crew has gone with it's styling. I much prefer the clothing from a couple years ago. Having said that I don't think I would like to see UO buy them. As a Canadian shopper we already get raped and pillaged by taxes and duties when our goods cross the border but at least we only pay what the government actually charges. UO uses Fifty-One and they seem to add a bunch of their own fees on top of the government ones and if that were to happen you could cross J.Crew off my online shopping list forever. I refuse to order off Anthro's website as the duty and taxes are ridiculous. Point in case items made in the US are not subject to duty when shipping to Canada, I looked at putting in an order for a US made $60 dress, the taxes should have been $7.20 but Fifty-one wanted $27. They were lining their own pockets by $20. Needless to say I canceled that order. So I say no to UO.

  27. I agree with Deanna about Fiftyone and Anthro/UO. What a sham.

    Anyway, when I think of Sears buying out other companies, I think of what happened to our lovely Eatons department stores here in Canada. An old Canadian company, it got into some financial trouble due mostly to mismanagement by the family that inherited it, but also because people saw it as an "aspirational" store around the time Walmart was making inroads into the country and "bargain" shopping was the rage.

    Sears said it would keep Eatons the same.

    It didn't. It became a hodgepodge of Sears stuff,hardware(!) and general Sears crapola. Along with a little bit of Eatons merch. But the nice store lighting, the decor, the whole FEEL of the stores changes. It failed, big time. Sad.

    THAT is what is in store for J Crew if it's bought by Sears. The kind of people who just don't even SEE nice, contrasting piping on the inside of a waistband, or get a thrill from the heft and weight of a belt buckle, or notice the richness of a colour or softness of a velvet. Let alone want to pay a teeny bit more to have that.

    J Crew will be doomed. Nice going, Mickey and Jenna. At least you'll have your millions to console yourselves.

  28. Does anyone even go into Sears? I do. Only when the mall is busy, we park in their near empty lot and walk through Sears to get to the better stores.

    If Sears gets a hold of J.Crew, that will be the end of all things good. If Slick Mickey wasn't trying to pull a fast one, maybe bargain hunting companies like Sears wouldn't be in the running. With all things, price it right and you won't be sorry.

  29. so urban outfitters has better quality and design than JC??... really? Not in my town. I don't shop at any of the retailers who are window shopping the brand and will be sad and disappointed should they win the bid. Agree with Elaine about more but sad money in my wallet.

    I don't understand the negativity of MD and JL. Ms. Lyons has been there for 20 years so has surely contributed to designs of 2004-2010 which we all argue over.

    I agree quality has gone down but I have seen that across ALL my shopping venues.

    Also don't agree about MD being a "snob". It certainly isn't in his track record of the type of clothing companies that excite him. What was the Gap before him? Ann Taylor? If Steve Jobs enjoys his company on the board of Apple that's plenty of endorsement for me. He sent peaches out to good customers... call me a snob but I found that a warm gesture with integrity--not "bling-y" or "glitzy".

  30. gem twin I'm not against MD at all. I just see the reality that he may have reached an age where he has all he wants. He has crazy money, a ginormous house in the Hamptons, a great reputation and if they take it private, he may even be fighting to get the quality back. But if he were to sell to Sears, I would be inclined to think he was just ready to enjoy his life or take a new challenge. I would say the same thing if Target were shopping them. A company who likes to reference Italian artisans seems quite different than Sears' softer side.

    It sounds like we have ten days to wonder :)

  31. I would love Target to take them over. I mean, where else can you get Argyle, hoodies, and a carton of milk all in one shot? ;)

  32. I'm going to hades in a handbasket, but I just about died laughing at the NY Post pic of Dear Leader's head pasted onto a model in a reindeer sweater! LMAO!


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