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Tokyo Shrugs Off Fast Retailing/Gap Takeover Rumor

Recent speculation regarding a bid for the American company failed to move Fast Retailing's shares.

Gap flagship in Shanghai.

Investors in Tokyo appeared to shrug off a recent round of speculation that Fast Retailing Co. Ltd. is interested in buying Gap Inc.

Shares of Fast Retailing, which operates the Uniqlo chain, ended Monday’s session up 2.13 percent at 25,390 yen, or $323.32. That gain is in line with the performance of the overall market. The Nikkei 225 index rose just over 2 percent.

A retail analyst in Tokyo said a recent press report suggesting a deal between the companies was not convincing, adding that the market has heard this same rumor on off for the past five years.

Spokesmen for both the Gap and Fast Retailing declined to comment on the rumors.

Speculation about a potential deal moved Gap shares considerably on Friday. They jumped as high as 7 percent in midday trade before ending the session up 4.85 percent at $32.88.

By 2 pm Friday on Wall Street nearly 12 million shares of Gap had traded hands, well above the stock’s average daily trading volume of 5.8 million over the past three months.

U.S. markets are closed Monday for Presidents’ Day.

Although Wall Street responded to the rumors, it is unclear how well founded they are. The market is ripe for big time takeover talk. Companies can cheaply borrow money for buyouts right now and there have been a spate of mega deals in recent days, including Warren Buffett and 3G Capital’s $23 billion agreement to buy H.J. Heinz

Fast Retailing is also an acquisitive company, having most recently bought J Brand Holdings in December, although that was a much smaller deal than a play for the Gap would be.

“Fast Retailing has always had pretty lofty ambitions, and many people say they should buy Gap, if they want to have a U.S. business,” said one financial source. “For them to grow organically and develop a footprint in the U.S., it would take them forever.”

Still, the Tokyo-based retail analyst questioned the appeal of the Gap’s vast retail network, particularly its exposure to Middle America, which is relatively unchartered territory for the Japanese company.

“Organizationally, it’s kind of difficult [for Fast Retailing] to manage,” he said of the Gap’s domestic business.

Fast Retailing executives have said they plan to concentrate on growing Uniqlo’s still-small U.S. footprint on the East and West Coasts, before considering further expansion into new areas of the country.

Fast Retailing chief executive officer Tadashi Yanai has said Fast Retailing has “billions to spend on acquisitions. This could be the quickest path, but it’s a big big bet.” In 2007, Fast Retailing offered $900 million to buy Barneys New York but was rejected. Tadashi Yanai has also said that he plans to open up to 300 Uniqlo stores outside Japan per year.

“At the end of the day, if you are a public company and if somebody puts an offer on the table at a reasonable price, you would be forced to entertain it,” said the financial source. “But Gap is not the kind of company putting out vibes for somebody to acquire them, and there would only be a short list of people capable of buying it.”

One retailer familiar with both Gap and Fast Retailing said Tadashi Yanai is “much more interested in building Uniqlo — sounds like there are some rumors around — but if it’s around my strong guess is that it’s truly only rumors.”

Fast Retailing’s mainstay is the Uniqlo chain, which is often referred to as “the Gap of Japan.” It sells private label casual sportswear inexpensively, like Gap. There are about 1,200 Uniqlo in different countries, but only a handful in the U.S. Other brands owned by Fast Retailing include Theory, Comptoir des Cotonniers, Princess Tam-Tam and g.u.

There have also long been rumors that Gap could decide to sell off a division rather than the entire company. Old Navy has been its most profitable division.

According to its Web site, Fast Retailing’s takeover strategy is to “acquire businesses overseas and in new markets to strengthen our business platform.” The company also said it wants to “acquire brands with the potential for global development and thereby strengthen and expand our portfolio.”