U.S. directors are getting a J Crew makeover

February 3, 2011

By Rob Cox and Lisa Lee

American company directors may be getting a J Crew makeover of sorts. The anger that retailer elicited from investors in handling its buyout is creating ripples at other companies targeted by private equity buyers. It probably explains the decision by the academically-heavy board of BJ’s Wholesale to kick off an auction after six months of deer-in-the-headlights inaction. It’s a good sign for shareholder rights.

By hiring Morgan Stanley to explore options on Thursday, the $2.7 billion club retailer – which toils away in the shadows of mega-rivals Costco and Wal-Mart – is saying no to the kind of closed-door, sweetheart deal that J Crew CEO Millard “Mickey” Drexler engineered for himself and private equity backers TPG and Leonard Green & Partners. It’s no secret the latter has been itching to take BJ’s private for months.

Yet with its light debt and solid cash flow, BJ’s may attract serious bidders other than the Los Angeles-based private equity firm, whose previous retail investments have included Petco, Rite Aid and Neiman Marcus. More importantly, by throwing the doors open to all comers, the board is more likely to get the best price possible for shareholders.

By contrast, Mr. Drexler danced with his buyout buddies for weeks before bothering to inform the board, which then blessed the $3 billion buyout without conducting an auction. Earlier this week, J Crew’s settlement with disgruntled shareholders fell apart amid accusations that the company made a sham of the extended go-shop exercise that was supposed to turn up alternatives to the TPG/Green/Drexler bid.

BJ’s board certainly looks to have dawdled since Leonard Green took a 10 percent stake in the company in July and said it would approach management to buy the rest. But if the shenanigans at J Crew led BJ’s board to spring into action, however belatedly, then no harm may have been caused by the delay.

With a little luck, it may even allow for the three academics out of seven independent directors on the BJ’s board – including the dean of Dartmouth College’s Tuck business school, the president of Babson College, and a finance professor at Boston College – to avoid becoming corporate government case studies for their own students.

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