Gap Inc. shares surged Monday on a news report that the struggling retailer has hired the investment firm Goldman Sachs to consider a possible sale or other dramatic changes.
The report on CNBC television caused the San Francisco-based company’s stock price to rise by as much as 11.4 percent before retreating slightly. Gap shares were up by $1.62, or 8.6 percent, to $20.51 in late afternoon trading on the New York Stock Exchange.
Gap turned to Goldman Sachs Group Inc. to explore “strategic alternatives” late last year, according to CNBC.
“I would describe the report as ’rumor” and we don’t comment on rumor or speculation,” said Gap spokesman Greg Rossiter. A call to Goldman Sachs wasn’t immediately returned.
Investors for several months have been wondering whether Gap might dump its chief executive, Paul Pressler, or consider takeover offers in response to the clothing retailer’s second prolonged sales slump in the past six years.
The latest funk began in the spring of 2004, prompting repeated promises of a turnaround.
The troubles instead have been deepening, culminating in a miserable holiday shopping season that forced Pressler last week to lower the company’s earnings guidance for the third time in the last five months.
With the revisions, Gap’s profit for its fiscal year ending in January is expected to fall about $300 million, or 40 cents per share, below what Pressler envisioned when 2006 began.
Some industry analysts have theorized that a deep-pocketed private equity firm might be willing to buy Gap for about $20 billion, or $24 to $25 per share, and then bring in new management to tackle the problems that Pressler and his team so far have unable to address.
Despite its recent woes, Gap remains an appealing takeover target because it generates lots of cash and retains a well-known brand backed by a retailing network spanning nearly 3,200 stores. Besides the Gap chain, the company also owns Old Navy, Banana Republic and Forth & Towne.
Any takeover attempt would likely have to win the backing of Gap co-founder Donald Fisher, the patriarch of a family that controls more than 25 percent of the company’s stock. Although he is approaching 80 years old, Fisher hasn’t given any inkling he is interested in relinquishing control of the company that he started 38 years ago.
But the hiring of an investment banker would indicate Fisher might be more receptive to a sale, particularly if it’s a leveraged buyout that enables his family to retain a significant stake in the company.
In its report, CNBC said a Gap sale is “not imminent.”