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TJX Companies, the listed discount apparel chain, had drawn the interest of private equity firms as recently as a month ago, according to sources. TJX owns TJ Maxx and other retailers. Any deal ideas may be on hold, however, due to concerns over potential liabilities related to a customer credit and debit card data theft investigation, the sources said.
High yield bond analysts have agreed that the company is a likely take-out target.
A private equity shop was testing lenders as recently as a month ago on how much leverage would be accessible in the event of an LBO of TJX, said a source claiming knowledge of the situation.
Calls to the TJX executive offices seeking comment were routed to the company spokesperson, who had not responded by press time.
Another investment banker said private equity firms had been exploring the possibility of an LBO of TJX for several months, up until two months ago. Private equity firms seem to have moved away from the idea lately, this source added, though he was unable to present a reason for the eroding interest.
A third banker who specializes in retailers also said private equity firms have been looking at TJX, but added that those firms are wary of doing a deal because it is hard to predict the potential legal damage that could be associated with the credit card security breach.
TJX is in the midst of investigating a theft of credit and debit card information, and the scope of the breach is not fully known, according to company announcements and an analyst.
In the first quarter of 2007, the company took a USD 12m after-tax charge related to the investigation, and said it expects a charge of USD 15m to USD 20m in the second quarter related to the issue.
According to Forrester Research, the cost of the security breach to to TJX could be as much as USD 1bn over several years, including the costs of litigation, lost business, security upgrades, consultants and legal fees.
The security breach would only slow down a deal, and potentially give the company a reason to delay a transaction if it is reluctant to sell, the source said, adding that he had last heard of LBO interest in TJX in March. It is unclear how open the company’s management is to a sale, sources said.
The company is trading at an EBITDA multiple of 8.5x based on 2006 EBITDA OF USD 1.6bn and enterprise value of USD 13.6bn, which puts it within reach of private equity firms, said a private equity source and a sponsor banker.
At the same time, despite its legal woes, its position as a leading discount apparel retailer and its stable cash flows are also attractive to private equity firms.
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