Sears and Urban Outfitters Are Sizing Up Possible Offers for J. Crew

Sears Holdings (SHLD) and Urban Outfitters (URBN) are apparently both looking to buy J. Crew Group (JCG). The two are weighing making rival bids for the clothing retailer, Bloomberg reports, citing three unnamed sources. This could create a challenge to TPG Capital and Leonard Green & Partners' plan for a $3 billion buyout.

Back on Nov. 23, J. Crew agreed to be acquired by the two buyout firms for $43.50 per share in cash -- a 29% premium to J.Crew's average closing share price over the previous month. This was the largest retail offer the last year, according to Bloomberg. The agreement between the two also allowed J. Crew to "solicit, receive, evaluate and enter into negotiations with respect to alternative proposals" -- basically shop the company around -- through Jan. 15.

Now, department store operator Sears and apparel retailer Urban Outfitters are studying J. Crew's books, Bloomberg reported. But neither company has indicated whether it will actually counter the private equity firms' offer, the sources said.

A $27 Million Break-Up Fee

Other than the retailers, it seems that at least two other private-equity firms are also receiving confidential data on J. Crew, according to Bloomberg.

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Under the agreement with TPG and Leonard Green, Millard Drexler, who was largely responsible to turning J. Crew around, will continue as chairman and CEO, and maintain a significant equity investment in J.Crew. Also, there is the matter of the $27 million fee J. Crew must pay the two firms if it accepts a higher offer.

J. Crew has 250 stores -- including 221 J.Crew retail stores, nine crewcuts and 20 Madewell stores -- and 85 factory outlet stores. An acquisition might help boost operations at struggling Sears, still faces increased competition and lower traffic. The parent of Sears and Kmart stores reported a wider third-quarter loss as sales fell 5%, especially in its namesake stores. As for hip Urban Outfitters, it seems investors see a match with J. Crew less appealing.

J. Crew climbed around 2% by midafternoon, to $44. Sears advanced some 1.2% to $72.31, but Urban Outfitters fell 0.45% to $35.73.