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Leonard Green in Talks for Topshop Stake

Deal with U.S. private equity firm could be signed Thursday.

First J. Crew, now Topshop.

Leonard Green & Partners — which owns J. Crew Group Inc. with Texas Pacific Group — is in talks with Sir Philip Green about buying a 25 percent stake in Topshop and Topman in a deal that could be worth around $307 million.

Sources said a deal could be finalized as early as Thursday.

The two operations are under Green’s Arcadia Group Ltd. umbrella, the holding company that also owns fashion brands Dorothy Perkins, Miss Selfridge and Burton. The other Arcadia operations are not part of the deal being negotiated with Leonard Green & Partners.

Sir Philip Green could not be reached for comment Tuesday. Financial sources said the Topshop and Topman operations have a combined valuation that could be as high as $1.23 billion.

The shares of Arcadia are actually owned by Green’s wife, Lady Tina Green. Both of them are residents of Monaco. Arcadia in 2002 became part of Taveta Investments, owned by Green and his family. Taveta is considered one of the U.K.’s largest privately owned retail groups.

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Leonard Green & Partners has familiarity in the retail space. It joined forces with TPG in November 2010 in a deal valued at $3 billion to take J. Crew private. The firm also holds investment stakes in BJ’s Wholesale Club Inc., The Container Store, Neiman Marcus Group and Tourneau. It also has a stake in brand management and licensing firm Authentic Brands Group, the entity that is the stalking-horse bidder trying to acquire bankrupt HMX Group.

The private equity firm favors investments in companies that are considered industry leaders and are cash flow positive businesses that can grow 50 percent over a five-year time frame.

Market sources said the discussions between Leonard Green & Partners and Sir Philip Green have been ongoing for some time as Green is good friends with Jonathan D. Sokoloff, a managing partner at the Los Angeles-based private equity firm.

Sokoloff serves on the boards of Authentic Brands Group, BJ’s Wholesale Club Inc., David’s Bridal Inc., Tourneau and J. Crew Group, among other firms.

Neither Sokoloff, nor Michael Gennaro, chief operating officer at the private equity firm, could be reached for comment.

Once the transaction gets completed, $307 million would give Green a sizable war chest to make other acquisitions within the Arcadia umbrella, as well as expand Topshop and Topman. And in Leonard Green, Sir Philip Green will have an American partner who understands the U.S. retail landscape. At the same time, Green’s expertise in global retailing could help Leonard Green and TPG as J. Crew looks to expand worldwide. The U.S. retailer recently revealed plans to open its first store in Europe, on London’s Regent Street, late next year.

Millard “Mickey” Drexler and Sir Philip Green are friendly. Green is considered a colorful personality in the U.K. retail scene, one who is not afraid to speak his mind.

Gilbert Harrison, chairman of investment banking firm Financo Inc., which is not involved in the talks but whose chairman knows Green and has had Green as a guest at his annual retail soirees, said, “He is one of the great merchant princes of the world. Any deal he does would be extremely astute.”

Arcadia, which last month posted results for the year ended Aug. 25, swung back into profit for the period. Profits climbed to $110.8 million, against a loss of $194.2 million a year ago, due to exceptional items linked to a clutch of underperforming stores across the U.K. Sales were essentially flat at $4.23 billion, but that’s because there’s been a general slowdown on the U.K. high street for the last year. Same-store sales were down 0.7 percent.

Since he acquired Arcadia, Green has invested a total of $1.59 billion to grow the businesses under its portfolio, in particular a push in international expansion. Topshop — whose London flagship is at Oxford Circus — operates about 450 stores in 37 countries in North America, Europe, Africa and the Far East.
In the U.S., Green will open the first Topshop and Topman stores in Los Angeles on Feb. 14. Topshop also has 14 in-store departments at Nordstrom. That collaboration could be expanded. Topshop-Topman already has one site in Manhattan at 478 Broadway, and the city could easily accommodate additional store locations. Other Topshop-Topman stores in the U.S. include one in Chicago on North Michigan Avenue, and one in the Fashion Show Mall in Las Vegas.