Mad Money

Cramer: 2 private equity takeover targets?


Two retailers have been struggling lately and as they struggle, shares have tumbled. Cramer thinks it makes all the sense in the world to think private equity is about to pounce.

That's because it's happened before.

In 2013, the private equity firm when sales were in decline and results missed estimates and they acquired Talbots in 2013 when the apparel maker was facing similar woes.

"They also took back in December, and they're now attempting to do the same thing with Express, another underperforming fashion retailer," Cramer noted.

And, Cramer added, it makes all the sense in the world. "Going private allows these companies to step away from the short-term scrutiny of public markets and instead focus on a method of recovery which may be short-term negative but long-term positive.

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After doing a little homework, Cramer thinks two other retailers may be in similar situations; that is, the stocks may be broken but the companies are not. They are Chico's and DSW.


Looking at Chico's, Cramer said, the company has delivered terrible earnings but, if you drill down, there's a lot to like. "The company has a number of additional concepts including White House Black Market, Soma and Boston Proper. Also the company is growing aggressively in international markets, and over the last five years, Chico's has made extensive infrastructure investments, upgrading its distribution centers and IT capabilities."

With a little time and patience, Cramer can see Chico's fortunes turning around, easily.

In fact, he's crunched the numbers and said private equity could pay as much as $21 per share for the company; that's almost a 30 percent premium from the current share price, and still generate sizable returns.


Turning to DSW, with shares down 36 percent year to date, Cramer thinks private equity may find this shoe seller to be the perfect fit.

"I think DSW has gotten hit because of transient fashion and weather related issues, not because of a structural problem with its business model." Cramer said.

"Looking forward, I think there's a lot a private equity firm could do to bring out value here, and if they're smart, one of them will make a bid while the stock is still languishing down in the $20s."

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Of course, it's worth noting that Cramer never advocates looking at a stock simply because it might be a takeout target. Fundamentals must be sound, as well.

In the case of DSW, even if an offer doesn't surface immediately, Cramer said, "DSW generates a healthy 2.8 percent yield and the company is sitting on $6 per share in net cash," he said. "Effectively, they're paying you to wait."

Returning to Chico's, Cramer said recent weakness was more to do about trends, "and a lousy assortment of merchandise for the spring. From a structural perspective, however, Chico's is one of the strongest retailers out there."

Call Cramer: 1-800-743-CNBC

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