Gap Explores Alternatives, Including Possible Sale: CNBC's Faber
Gap has hired Goldman Sachs to help it explore strategic alternatives that could include the sale of the company, people familiar with the situation told CNBC's David Faber.
Gap, a $15 billion revenue retail giant with a market cap to match, had a very difficult 2006--capped off by an 8% decline in its same store sales for December.
Goldman was hired prior to Christmas, Faber said. While its mandate is believed to be typical of such assignments--encompassing any number of steps the company might take to reignite sales, earnings and stock price--a sale is also something sure to be considered, he added. A company spokesman declined comment on what he termed rumor and speculation.
Gap's founding family, the Fishers, control roughly 37% of the stock. Faber said it is unclear whether they have any interest in selling or would consider trying to take the Gap private themselves. Either way, if there is to be a sale of the Gap, it would appear the most likely avenue is for it to go private -- either in a transaction in which the Fishers take on debt to do so, or one in which a private-equity group takes control, Faber said.
It would be a big buyout, but one that professionals in the business see as interesting and doable given the Gap's cash flow, depressed though it is, and the markets current tolerance for loading debt on to retailers, Faber said In fact, there have been no shortage of books put together by investment banks detailing the parameters for a go-private transaction involving the Gap.
That said, Goldman's hiring does not mean a sale is imminent, Faber said. The bank might recommend any number of other options including a spin-off one of its units, such as the still in-favor Banana Republic.
While there has been some takeout speculation about the Gap, the more heated speculation has been whether the company will fire its current CEO Paul Pressler. In a note out last Friday, Lazard analyst Todd Slater, for example, wrote that "the continued debate in the company's two core businesses, clearly increases the likelihood of a management change."
That possiblity, coupled with low level takeover chatter, is one reason why the stock did not sell off much after December's disappointing same-store sales.