Not so fast.

This story first appeared in the March 14, 2014 issue of WWD. Subscribe Today.

Fast Retailing Co. Ltd. is said to have balked at the $5 billion price tag for J. Crew Group Inc. — potentially hurting the chances for a deal, or just marking the next song in the M&A dance between the two companies.

The price is seen by many as high at 13.5 times earnings before interest, taxes, depreciation and amortization in a market where 10 is considered a very healthy valuation. The chain could still be worth it. Led by chairman and chief executive officer Millard “Mickey” Drexler, J. Crew is considered one of fashion’s best-run retailers with overseas potential that is still largely untapped.

However, earnings growth has slowed lately. Adjusted EBITDA rose 27.4 percent to $359.6 million in 2012, but inched up about 2.9 percent to about $370 million last year.


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If anyone’s going to pay up big time for J. Crew, it’s expected to be a strategic player such as Fast Retaling that could take a longer-term view and use its international network and expertise to grow the brand. Another strategic buyer could enter the bidding. But absent that, some might be sensing some wiggle room since Fast Retailing appears to have little competition from private-equity firms at that price. Two private equity firms, TPG and Leonard Green & Partners, took J. Crew private in a $3 billion deal in 2011.

“The company’s earnings aren’t growing that fast to go out and pay a huge multiple,” a financial source noted.

Private-equity players also seek to hold companies from three to five years and anyone looking to flip the retailer might have to pay to bring Drexler on board, but then sell the company under new management should the merchant retire.

The $5 billion valuation first surfaced two weeks ago when news of talks between the two companies leaked in what might have been an effort to move a deal along. It is unclear how quickly the talks are progressing, or if they’re moving forward at all.

Uniqlo-parent Fast Retailing had cash and cash equivalents of 295.62 billion yen, or $3 billion, at last count and has the financial might to reel in the American company.

Fast Retailing’s Tadashi Yanai has long been an admirer of Drexler, but Fast Retailing is also said to have at least contemplated buying any of a string of American retailers over the years, including Gap Inc., American Eagle Outfitters Inc. and Aéropostale Inc.

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