There is much to be admired at J Crew… however behind the preppy-boho façade and Jenna Lyons PR machine, corporate drama has been brewing.
It all started last November when the company announced it would be purchased for $3Bn in a leveraged buyout by TPG Capital and Leonard Green & Partners. J Crew has a long history with TPG, who took the company private in 1997 and gave management free reign to close underperforming stores, retool its product lineup and hire the brilliant Mickey Drexler (after he was fired by Gap.) In 2006, J Crew went public again and Drexler and TPG made a fortune. Now, it looks like they're aiming for an encore performance.
It seems that in this latest deal, Drexler and Leonard Green privately hatched the plan to sell the company without notifying the board for weeks… then the board signed on without a proper auction process. As CEO, Drexler has enormous incentives to take the company private and the potential for a conflict that compromises shareholders' interests is quite high. Activist investors thought J Crew could command a better price, smelled a lemon and sued… then J Crew started shopping the deal to other investors… then they settled… and now the settlement has fallen apart. The story has more twists than a telenovela.
So will the deal pull through? Probably. However, the clumsy deal process has been such a train wreck it's become a case study in bad board governance and has damaged Drexler's sterling reputation as the merchant prince.
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