The potential of rival bids emerging for American Apparel have taken some air out of Gildan Activewear Inc.’s shares.
That’s the view of analyst Keith Howlett of Desjardins Securities, who noted that since Gildan’s proposed acquisition was announced last month it has outperformed its industry peers and as well as the S&P 500 Textile & Apparel Index. The Montreal-based company’s stock fell almost six per cent on Monday to close at $26.30.
“We are not aware of any specific reason for the share price decline, Howlett wrote in a note to clients on Tuesday. “The potential acquisition of the intellectual property and printwear business of American Apparel may have boosted Gildan shares over the last month,” he added, noting rumours that more bids might emerge. “Bidders outside of the printwear industry may emerge, or an unexpected challenge may be mounted by a smaller printwear competitor.”
The Montreal-based maker of T-shirts and socks agreed to buy troubled American Apparel and some of its assets last month for US$66 million after the Los Angeles retailer and manufacturer filed for bankruptcy protection for the second time in just over a year. Gildan has not bid for American Apparel’s roughly 200 retail stores in the proposed transaction.
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A court-supervised auction will be held on Jan. 9 if competing bids are filed on Jan. 6.
Gildan has “much greater financial resources” with which to bid than its primary competitors within the printwear channel, Howlett noted. But Authentic Brands Group, one rumoured potential bidder, “has the scale to compete with Gildan, and the American Apparel brand would appear to fit with certain other edgy brands it already controls, such as Juicy Couture and Frederick’s of Hollywood.”
Howlett expects Gildan will have a strong performance in 2017 thanks to recent acquisitions and several yarn-spinning investments in 2016. He is not incorporating a potential American Apparel transaction into his $39 target price and buy recommendation for Gildan.
American Apparel, founded by Montrealer Dov Charney in 1989, built its brand on risqué advertising and a “sweatshop-free” philosophy, with manufacturing based in the U.S.
Source: Financial Post