Gap to split into two companies

Wall Street Journal has reported that Gap Inc., the parent company of Gap, Banana Republic, Athleta, and Intermix, will be splitting into two publicly traded companies. The companies will now be split into Old Navy and a yet-to-be-named company, which will consist of Gap, Athleta, Banana Republic, Intermix and Hill City. Gap Inc. expects to effect the separation through a spin-off that is intended to generally be tax-free to Gap Inc.’s shareholders for U.S. federal income tax purposes. The spin-off will enable each company to maximize focus and flexibility, align investments and incentives to meet its unique business needs and optimize its cost structure to deliver profitable growth.

“Following a comprehensive review by the Gap Inc. Board of Directors, it’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward,” said Robert Fisher, Gap Inc.’s board chairman, in a statement. “Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands – creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders.”

Gap Inc. will break off into two publicly traded companies

In a statement, Art Peck, president and CEO of Gap Inc., added, “We have made significant progress executing on our balanced growth strategy and investing in the capabilities to position our brands for growth: expanding the omni-channel customer experience, building our digital capabilities and improving operational efficiencies across the company. Today’s spin-off announcement enables us to embed those capabilities within two stand-alone companies, each with a sharpened strategic focus and tailored operating structure. As a result, both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment.”

Both companies will have experienced leadership teams, well suited to lead these organizations on their separate, defined paths.

Gap Inc.’s current President and Chief Executive Officer, Art Peck, will hold the same position with the new company after the separation. With more than a decade of retail leadership experience, Peck is well positioned to lead the new company going forward. Over the last several years, he has led significant improvements at Gap Inc. and reinvigorated growth across several specialty brands by strengthening the supply chain and pivoting quickly to leverage technology and capitalize on new customer trends.

Following the separation, Sonia Syngal, current president and CEO of Old Navy, will continue to lead the brand as a standalone company. Syngal — who has led Old Navy since 2016 — has a proven track record of leading Old Navy’s transformation and driving product-to-market innovations, as well as deep experience in supply chain and manufacturing in both retail apparel and other industries.

Upon separation, Gap Inc. shareholders are expected to receive a pro-rata stock distribution and as a result own shares in both the new company and Old Navy in equal proportion. The transaction is currently targeted to be completed in 2020, and is subject to certain conditions, including final approval by Gap Inc.’s board of directors, receipt of a tax opinion from counsel and the filing and effectiveness of a registration statement with the U.S. Securities and Exchange Commission. There can be no assurances regarding the ultimate timing or terms of the separation or that the separation will be completed.

After the separation, the new company and Old Navy are expected to be appropriately capitalized with sufficient cash to support planned operating and investment plans.

The new company will be based in Gap Inc.’s current headquarters and Old Navy will remain at its current headquarters, both located in San Francisco.

Morgan Stanley & Co. LLC is serving as financial advisor and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Gap Inc.

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