How much is Gildan Activewear Inc. worth?
Now that Gildan has put itself up for sale, an even bigger battle on the horizon could be over its price tag.
Gildan said on Tuesday that it decided to weight its options after setting up a Special Committee of independent board directors following the receipt of a “confidential nonbinding expression of interest” to acquire the hosiery and T-shirt manufacturer. The review includes leaving the firm as a stand-alone company. Gildan also said it has received communication from several potential buyers interested in a “friendly transaction” with the company.
It wasn’t immediately clear who those potential buyers are, but Sycamore Partners is believed to be one of them. What also isn’t known is whether Sycamore is the potential buyer who submitted the unsolicited “expression of interest.” A Bloomberg report said the New York-based private equity firm has discussed financing options with potential lenders. A spokesperson for Sycamore declined comment.
Gildan is already locked in a proxy fight with investment firm Browning West. The investor is seeking to reconstitute Gildan’s board. The plan is for the new board to reinstate former CEO Glenn Chamandy as the company’s chief executive. Now the activist is taking issue with the rumored per-share price of $42 from the unnamed potential buyer. Shares of Gildan, which trades on the Big Board, ended Tuesday’s trading session at $37.22. Following news of a potential buyout, the shares opened Wednesday’s trading session at $38.34 and has since drifted slightly higher as investors ponder over the feasibility of a deal getting done.
Investors in any buyout hope for the best price possible. Once a deal is done, activists get their allotted proceeds. While some might think $42—a nearly 13 percent premium to Tuesday’s closing price—represents a solid value, Browning West’s attitude is along the lines of “not so fast.”
“Since the onset of our campaign, we have maintained that Gildan is a high-quality business with significant latent earnings power and strong value creation potential under the right Board and management,” Browning West said Wednesday in a statement.
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As for the rumored per-share price, the activist explained why $42 is insufficient: “Based on unsolicited feedback we have received from fellow shareholders, we believe that the Company’s owners would be dismayed at the rumored $42 per share indication from a potential buyer, which effectively represents no premium. To put this low price in context, if Glenn Chamandy had not been terminated and the stock had simply performed in line with the most relevant index, it would be worth approximately $42 per share today.”
Browning West said that it believes the stock will recover to at least $42 after its board slate nominees are elected on May 28, when Gildan is scheduled to hold its Annual Meeting of Shareholders. The activist went on to note that the shares “could, in our view, be worth multiples of that level over the long term.”
Gildan’s current market capitalization is $6.57 billion. The average number of common shares outstanding, on a diluted basis, for the year ended Dec. 31, 2023, were 176,224,000. If Browning West is right about the share value following the board election, one can argue that the company’s worth could be in the range of $7.4 billion.
But as for the possibility of higher multiples over the long term, that’s up for debate. Gildan last month posted an 82.7 percent jump in fourth-quarter net income, for the period ended Dec. 31, to $153.3 million, or 89 cents a diluted share, on an 8.7 percent increase in net sales to $782.7 million. For the year, net income slipped 1.5 percent to $533.6 million, or $3.03 a diluted share, on a net sales decline of 1.4 percent to $3.2 billion. Adjusted diluted earnings per share (EPS) were 75 cents in the quarter and $2.57 for the year.
New CEO Vince Tyra in the company’s conference call spoke about a focus on organic growth and touched upon Gildan’s opportunity for growing its ring spun and fleece businesses. For 2024, Gildan is forecasting that adjusted diluted EPS will be in the range of $2.92 to $3.07, up between 13.5 percent and 19.5 percent year-over-year, on revenue growth projected at flat to up low-single digits.
But UBS softlines analyst Jay Sole, who has a “neutral” rating—the equivalent of a “hold”—on shares of Gildan’s stock, expressed concern surrounding Gildan’s long-term growth potential because of the paucity of information in Gildan’s fourth-quarter report on potential opportunities. He also cited concerns over Gildan’s CEO situation and whether Gildan can raise its Fiscal Year 2024 guidance over the course of the year.
Meanwhile, the bad blood between Gildan and its activist investor likely will continue to escalate as it has since December when Gildan dismissed Chamandy, the company’s co-founder and former long-time CEO. The company named Tyra as president and CEO, succeeding Chamandy on Feb. 12. After the activist battle began, Gildan had Tyra begin his new job one month earlier to provide some stability and leadership to the company.
The activist has the support of eight other investors—Turtle Creek Asset Management, Jarislowsky Fraser Ltd., Cooke & Bieler LP, Pzena Investment Management, LLC, Janus Henderson, Anson Funds Management LP and Anson Advisors Inc., Oakcliff Capital and Cardinal Capital Management. The investors together control 35 percent of Gildan’s outstanding shares.