NEW YORK — J. Crew Group Inc. had suitors besides Texas Pacific Group and Leonard Green, but it was the belief that Millard “Mickey” Drexler would stay on in a deal with TPG that tipped the scales in its favor.
According to regulatory filings with the Securities and Exchange Commission released Monday, J. Crew said that its chairman and chief executive officer told the special committee evaluating the potential sale of the retailer that “if the company were to be sold, given that he is 66 years old, he had significant reservations about the prospect of working for a new boss, but that he had a high comfort level with TPG and had a positive experience with them during the period in which TPG owned the company.”
The committee concluded that Drexler would be “unwilling to work for any third party other than TPG.”
The private equity fund acquired J. Crew in 1997, brought Drexler onboard in 2003, took the firm public in 2006 and sold off the final remnants of its earlier stake last year. J. Crew agreed to be acquired and taken private by TPG and Leonard Green for about $3 billion on Nov. 22.
According to the SEC documents, there have been occasional overtures to J. Crew from entities interested in merging with the retailer, including one in the fourth quarter of 2008 from TPG, but none of those talks proceeded beyond the preliminary stage.
The deal was done in less than three months. TPG co-founder James Coulter, a director of J. Crew, again raised the possibility of buying the company on Sept. 1. Talks, including TPG’s tie-in with Leonard Green, proceeded into November.
During the talks, another entity, not identified in the filings, made an inquiry that failed to move beyond the preliminary stage, and another unnamed private equity firm expressed interest. However, the special committee didn’t pursue the private equity possibility based on its belief that Drexler would stay on only if TPG were involved.
Neither Coulter nor Drexler was involved in the retailer’s board decisions on the sale of the company, according to the SEC papers. Also recusing herself in those discussions was director Heather Reisman because of potential conflicts of interest: her husband is a founding partner of a private equity firm, of which she is a board member, that was also interested in a transaction for the sale of the chain.
Although not stipulated in the SEC filing, Reisman is the wife of Gerald Schwartz, founder and ceo of Onex Corp.
According to the acquisition agreement, Drexler owns 11.8 percent of J. Crew’s stock and would enter into a new employment agreement with the new owners. The filing said the initial term is for four years, subject to automatic extensions for successive one-year periods. His base salary will be $200,000, with the possibility of a bonus opportunity of $800,000, based on the achievement of certain performance metrics.
The filing said the initial offer was $41 a share, and through negotiations by the special committee, was increased to $43.50. Leonard Green was said to be unwilling to go as high as $45 a share.
According to the filing, and information from Perella Weinberg Partners, adviser to the special committee, the $43.50 per share offer, or $3 billion transaction price, puts the company’s enterprise value at 8.6 times its earnings before interest, taxes, depreciation and amortization for the trailing 12 months, versus a medium of 7.9 for specialty apparel firms and 8.9 for the branded retail category.
The offer also represented a 19.2 percent premium to the $36.49 closing price of the stock on Nov. 19; a 29.6 percent premium to a one-month average stock price of $33.57; a 29.2 percent premium to the three-month average stock price of $33.66, and an 8.7 premium to a 12-month average stock price of $40.01. Shares closed down 9 cents at $44.04 Monday versus a 52-week high of $50.96, reached on April 26, and a 52-week low of $32.03, reached on Aug. 16.
Following the completion of the deal, TPG would own 66.2 percent, Leonard Green 25 percent and Drexler and his related trusts 8.8 percent. The two funds are expected to contribute $1.1 billion to the purchase price. Barring the emergence of another suitor, the TPG-Leonard Green deal has a walk-away date of May 18, 2011. Different termination fees are triggered depending on which parties are still standing on certain dates.
In addition, Drexler will have 5.1 million in shares of vested stock options having a value of $151.5 million.
There are currently seven shareholder lawsuits, including one in Manhattan federal court.
As of Nov. 23, the retailer operates 250 retail stores including 221 J. Crew retail stores, 9 Crewcuts and 20 Madewell stores, the J. Crew catalogue business, jcrew.com, madewell.com and 85 factory outlet stores.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews