Fashion retailer French Connection’s shares jump on takeover hopes

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UNITED KINGDOM: Shares in fashion retailer French Connection Group Plc rose more than 20 percent on Monday after a newspaper report said overseas investors were looking to buy the loss-making company.

The Telegraph had reported on Saturday that potential buyers were thought to be a mix of European and U.S. private equity firms, as well as investment manager Neuberger Berman, and that French Connection had approached investment bank Moelis & Co for advice.

French Connection and Moelis declined to comment. Neuberger Berman did not respond to a request for immediate comment.

French Connection has struggled to compete against fast-fashion rivals such as ASOS, Forever 21 and Inditex’s Zara. It has not made a pretax profit since the year ended Jan. 31, 2012.

Private equity firms could be a natural fit for French Connection as they could push through operational changes to extract profit, and revive the company’s brand appeal, Neil Saunders from retail consultant Conlumino, said.

Also, British companies have become cheaper for overseas buyers as Britain’s vote to leave the European Union has driven the pound (GBP=) to its lowest in about three decades.

Any buyer would have to gain the backing of founder and executive chairman Stephen Marks, who still holds a 41.65 percent stake in the company as of March 15, according to Thomson Reuters data.

Independent retail analyst Nick Bubb said: “Marks will want a much higher price than anybody will pay, so bid talk will come to nothing/fizzle out.”

Marks was not immediately available to comment.

French Connection’s shares closed at 32.75 pence on Friday, valuing the group at about 31.5 million pounds. They are down sharply from highs of more than 500p set in 2004.

The retailer has been the source of takeover speculation in the past, and some industry experts said there was now more pressure on the company following years of underperformance and little sign of underlying issues being addressed, despite turnaround measures including store closures and the hiring of new management and design teams.

Activist investment firm Gatemore Capital Management, which has an 8 percent stake in French Connection, would be supportive of running an open sales process, Liad Meidar, managing partner at Gatemore said in an emailed statement.

Gatemore said it would be interested in a potential buyer looking to focus on increasing the rate of store closures and improving gross margins in French Connection’s retail and wholesale business.

French Connection needed to focus on fashion for 25- to 35- year-olds, said Gatemore, which last month urged the retailer to speed up its store closure programme after its first-half results showed another loss.

French Connection shares were up 9.9 percent at 37.55p by 1201 GMT.