Eddie Bauer and Pacific Sunwear of California (OTC: PSUN) are reportedly exploring a merger to consolidate their store footprint and weather a prolonged downturn in the U.S. brick-and-mortar retail sector.
The two sporty retailers have previously succumbed to bankruptcy and are searching for growth. In a merger, the companies could whittle down their store counts from their current total of nearly 700 together.
Eddie Bauer and Pacific Sunwear are controlled by a common owner, private equity firm Golden Gate Capital. Golden Gate Capital has not yet decided whether to combine the two companies and its plans for the retailers could still change, the sources said, asking not to be identified because the deliberations are confidential.
Eddie Bauer, which sells outdoor gear and apparel, is at risk of not keeping up with fashion changes, according to credit ratings agency Moody's Investors Service. It has a $218-million term loan and a $200-million revolving credit line.
The company's same-store sales are up 5% so far this year, one of the people said.
Golden Gate acquired Eddie Bauer out of bankruptcy protection in 2009 with a cash bid of $286 million. The retailer had been in bankruptcy five years.
Anaheim, California-based Pacific Sunwear emerged from bankruptcy in 2016 under the ownership of Golden Gate after the buyout firm converted its debt into equity in the restructuring. It emerged with a $100-million revolving line of credit from Wells Fargo.
Shares in Pacific slid 14.3% to one cent.
