Oct 24, 2016
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Fashion retailer French Connection's shares jump on takeover hopes

Oct 24, 2016

Shares in UK-based fashion retailer French Connection Group Plc rose more than 20 percent on Monday after a media report said overseas investors were looking to buy the lossmaking firm.

French Connection

The Telegraph newspaper had said on Saturday that interested 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 (MC.N) for advice. bit.ly/2dAzTzy

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

French Connection has struggled to compete in recent years against fast-fashion rivals such as ASOS, Forever 21 and Inditex's Zara and has failed to report a pretax profit since the year ended Jan. 31, 2012 with critics saying it should ditch its 25-year-old FCUK logo.

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, said Neil Saunders from retail consultant Conlumino.

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 (GCM), which has an 8 percent stake in French Connection, would be supportive of running an open sales process, Liad Meidar, managing partner at GCM said in an emailed statement.

GCM said it would be interested in a potential buyer looking to focus on increase the rate of store closures and improve 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 program after its first-half results showed another loss.

As of Friday's close of 32.75 pence - a fraction of highs of more than 500p set in 2004 - French Connection had a stock market value of 31.5 million pounds.

Any buyer will 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.

British companies have become cheaper for overseas buyers in recent months as Britain's vote to leave the European Union has driven the pound GBP= to its lowest in about three decades.

French Connection shares were up 10 percent at 36p by 0721 ET on Monday.


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