Gildan: Takeover Would Be a Very Favorable Result for Shareholders

According to the Globe & Mail newspaper and subsequently confirmed by a company release, no-moat Gildan has formed a special committee and engaged bankers to shop the company around after receiving a credible takeover offer. The midday report caused a sudden jump of about 10% in Gildan’s shares before both the Toronto and New York exchanges halted trading. At the time of the halt, the company’s shares were trading at roughly 20% premiums to our $31/CAD 42 fair value estimates. Presumably, a takeover (probably by a private-equity buyer) would occur at a price well above our valuation and, as such, would be an excellent outcome for shareholders. For now, however, we are not adjusting our fair value estimates or our Standard Capital Allocation Rating as it is uncertain as to whether a takeover will happen. We rate Gildan’s shares as overvalued on a fundamental basis.