TPG, Along With Leonard Green, To Buy J. Crew Again

More than a year after selling its remaining stake in J. Crew, TPG is set to own the preppy retailer again.

Today, TPG, along with Leonard Green, agreed to buy J. Crew for $43.50 a share or roughly $3 billion. J. Crew CEO Millard Drexler is part of the deal and will maintain a “significant equity investment” in the company, according to a statement.

Bank of America Merrill Lynch and Goldman Sachs are providing debt financing.

The transaction isn’t set in stone. Drexler reportedly wasn’t happy with how TPG revamped the deal (TPG and Leonard Green were supposed to offer $45 a share as of last weekend but TPG reduced the offer to $43.50), Dealbook says. The deal announced Tuesday also includes a go-shop period where J. Crew can solicit other offers through Jan. 15. Drexler could join forces with a new bidder. If there is no superior offer, the sale is expected to close in the first half of 2011.

Shares of J. Crew surged more than 16%, or $6.23, to $43.85 in late morning trading Tuesday. Separately, J. Crew, which sells preppy sweaters and pants through 250 retail stores, reported that third quarter revenue increased by 4% to $429.3 million. However, operating income dropped by nearly 15% to $64.1 million.

So why is TPG all hot for J. Crew again? The retailer was a good deal for TPG the last time around. In fact, J. Crew generated a more than seven times cash on cash return for TPG during the dozen or so years it owned it.

TPG bought the retailer in 1997 and invested about $190 million of equity, according to the Wall Street Journal. The company went public in 2006 but TPG didn’t sell any shares. In fact, TPG increased it stake. After the IPO, and once its lockup period expired, TPG began selling J. Crew stock in the open market. This included a secondary offering of 9.4 million shares in 2007, which generated $339.4 million in proceeds for TPG. The PE firm sold its last stake of 2.8 million shares in April 2009 for an additional $38 million.

Goldman and BofA Merrill Lynch advised TPG and Leonard Green. Perella Weinberg served as independent financial advisor to J. Crew’s special committee.