Gap Stocks Rise on Buyout Rumors

New York City, Gap Inc. shares rose today, lifted by an analyst’s report speculating that the specialty retailer may be taken private.

“With Gap having underperformed in a major way over the past 14 months, the risk-reward ratio now strikes us as favorable,” A.G. Edwards & Son wrote in a client note.

Shares of the Gap rose 19 cents to $21.54 on the New York Stock Exchange, after rising as high as high as $22.19 earlier in the session.

Gap’s stock price has fallen 15% since last June, while the broader Standard & Poor’s 500 index has gained 7% over the same period. A.G. Edwards wrote. But Gap’s stock has gained ground over the past two days, driven by market rumors that the retailer may be the subject of a leveraged or management buy-out.

Other analysts, however, questioned the viability of the speculation. They noted that the size of a potential buyout—the total transaction price was estimated at $28 billion—would be too high for a private equity-sponsored acquisition.

Goldman Sachs issued a note today downplaying the takeover rumors, calling a leveraged or management-led buyout of Gap “unlikely.” Gap’s management has worked hard to attain investment-grade ratings on its debt and is focused on launching its new clothing brand, Forthe & Towne, in two weeks, Goldman noted.