- Authentic Brands Group is in discussions to join a planned rescue of JCPenney, which Simon and Brookfield have agreed to buy out of bankruptcy in a deal valued at $1.75 billion, according to two people directly familiar with the matter.
- The deal would expand ABG's relationship with the landlords, which it has already partnered with to purchase Forever 21 and Aeropostale.
- Bringing ABG into the deal could allow Simon and Brookfield to populate JCPenney stores with exclusive merchandise from ABG's stable of brands, which include Nautica, Spyder, Vince Camuto, and Nine West.
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Authentic Brands Group is in discussions to join a planned rescue of JCPenney, which Simon Property Group and Brookfield Property Group have agreed to buy out of bankruptcy in a deal valued at $1.75 billion, according to two people directly familiar with the matter.
The source would not disclose whether the company, which owns a collection of consumer brands and celebrity rights, would invest in the department store alongside Simon and Brookfield as it emerges from chapter 11 or buy into the partnership after the restructuring was done in the coming weeks.
A spokeswoman for JCPenney stated that the planned sale of the company was "to Simon and Brookfield only."
Simon declined to comment and a spokeswoman for Brookfield did not respond to a request for comment.
The discussions offer a glimpse into how JCPenney might be refashioned into a platform for exclusively selling Authentic brands and the others labels that it has recently snapped up in partnership with the landlords.
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Authentic has previously partnered with Simon and Brookfield on the acquisition of other distressed retailers, together buying the fast fashion store Forever 21 early this year for $81 million. In 2016, Simon, Authentic, and GGP, a retail owner that was acquired by Brookfield in 2018, also purchased the clothing store chain Aeropostale.
Sandeep Mathrani, the CEO of the flexible workspace firm WeWork who had previously served as the chief executive of GGP when it partnered on the Aeropostale acquisition, said a partnership with Authentic would allow the owners to populate JCPenney stores with Authentic's stable of brands, which includes Nautica, Spyder, Vince Camuto, and Nine West.
"It will give JCPenney one of the few advantages it didn't have," said Mathrani, who said he remains close with David Simon, the chief executive of Simon Property Group. "It will give it an entree into many of the brands that Authentic controls. How does a store win? It wins by having exclusive products."
The company also has a 50/50 joint venture entity with Simon called Sparc, an investment vehicle that the pair used to acquire Brooks Brothers for $325 million and Lucky Brand for $140 million over the summer.
The deal for JCPenney would be the largest and most ambitious acquisition yet by the group, which has sought to buy up once-viable retailers at deep discounts in the hopes that profits can be wrung from reviving them.
For Simon and Brookfield, the acquisitions are also a defensive maneuver. Simon, has 63 JCPenney locations in its portfolio of a little over 100 mall properties, according to Floris van Dijkum, an analyst at Compass Point Research and Trading. Brookfield has almost 100 JCPenney stores in its malls, according to reports.
Controlling the store chain would allow the mall owners to keep it operating and paying rent and also protect themselves from potential co-tenancy issues that could be triggered by JCPenney's exit. Mall tenants often have clauses that allow them to cancel leases or pay diminished rents if department store anchors leave a mall property.
Simon and Brookfield are paying $300 million in equity, taking on $500 million of new debt, and assuming about $950 million of existing debt in the proposed deal. The partnership will take control of 490 JCPenney stores. It will also lease another 161 stores as well as distribution facilities from a group of JCPenney lenders, including H2 Capital, Sculptor Capital, Brigade Capital, and Sixth Street Partners, who will take ownership of those assets as part of the deal in exchange for forgiving about $5 billion in debt.
Van Dijkum, the analyst at Compass Point, said that JCPenney owns 32 of the 63 stores it has in Simon malls – assets that Simon could potentially take possession of in the purchase. He estimated that on average, JCPenney locations were each worth about $16 million, suggesting that Simon is getting a large discount to acquire the stores.
"We estimate that they're buying the land alone owned by JCPenney at 50 cents on the dollar and they're getting the retailer's operations thrown in basically for free," van Dijkum told Business Insider.
Simon and Brookfield have not yet disclosed whether they may seek to close a portion of JCPenney's stores and, if so, which ones.
In a statement announcing the deal on Wednesday, JC Penney's CEO Jill Soltau didn't specify how many of the department store's 70,000 workers would be spared in the deal.
Other groups had considered buying JCPenney, including the retail focused investment firm Sycamore Partners and even the e-commerce giant Amazon. Soltau said in her statement that Simon and Brookfield would "keep the most stores open and associates employed, and position JCPenney to build on our over 100-year history."
The company said it expects to complete the transaction "in advance of the 2020 holiday season," which has traditionally begun after Thanksgiving.
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