ISS recommends shareholders vote against J Crew deal

Tue Feb 22, 2011 5:35pm EST

* ISS recommends shareholders vote against takeover deal

* ISS says there's a "less-than-compelling" reason to sell

PHILADELPHIA Feb 22 (Reuters) - Proxy adviser Institutional Shareholders Services Inc recommended that J Crew Group Inc JCG.N investors vote against the retailer's planned $2.86 billion takeover by private equity firms TPG Capital [TPG.UL] and Leonard Green & Partners LP.

"Based on the less-than-compelling strategic rationale to sell the company at a lower than prevalent market premium," ISS urged shareholders to reject the offer.

ISS also cited "serious issues in the sales process," as well as a current discounted cash flow valuation that it above the current offer price.

A $2.86 billion deal to acquire J Crew was announced on Nov. 23, with TPG Group and Leonard Green agreeing to buy the company for $43.50 a share, a premium, at the time, of about 15 percent. J Crew closed on Tuesday at $43.36, down 27 cents, on the New York Stock Exchange.

The announcement spurred a flood of shareholder lawsuits protesting the share price and asserting that J Crew Chief Executive Millard Drexler breached his fiduciary duties to investors.

Drexler had been in discussions with the private equity firms for nearly seven weeks without informing the company's board, raising questions about corporate governance. [ID:nN07264425]

The clothing retailer, which operates a chain of stores, a catalog and website, last month settled certain shareholder litigation over its proposed takeover by agreeing to extend the so-called "go shop" period that allowed it to look for a different buyer. The extended "go shop" period failed to turn up a richer offer.

J Crew said the "proposed transaction offers a full and fair price for J.Crew's shareholders."

"Unfortunately, ISS's report is based on flawed analyses, and we believe that ISS has reached the wrong recommendation with respect to the contemplated transaction with TPG and Leonard Green," said Josh Weston, chairman of the special committee of the J Crew's board of directors.

J Crew said it would file an investor presentation on Wednesday to outline why the takeover bid "is in the best interests of its shareholders" and to respond to the ISS report.

The retailer's shareholder of record as of Jan. 21 will vote on the proposed takeover on March 1, the company said. (Reporting by Jessica Hall; Editing by Bernard Orr) (For more M&A news and our DealZone blog, go to here)

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