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Gap: Deal or No Deal?

The ouster of CEO Paul Pressler at Gap Inc. earlier this year, after another lackluster holiday shopping season, has sparked new speculation among industry observers and analysts about whether the company will be the next retailer to fall to private equity.

Most prominently, on his Mad Money program in January, James Cramer rated Gap a “triple buy,” proclaiming the company would be acquired for up to $25.00 per share in a private equity takeover. As of Feb. 22, Gap's stock was trading at $19.19 per share, compared to the historic high of $51.68 per share in February 2000 and to $19.90 per share on the day Pressler's exit was announced.

By parting ways with Pressler, Gap removed a potential $150 million obstacle to any acquisition: According to the terms of Pressler's contract, that's what he would have received as a “change in control bonus” if the company was sold under his watch. Instead, he walked off with a $14 million severance package.

Private equity remains a major X factor in the retail industry. Firms raised a record $215.4 billion in 2006, according to Private Equity Analyst. Of that, $148.8 billion was raised by leveraged buyout funds and retail has been a popular target the past two years.

For now, interim CEO Robert J. Fisher, son of Gap founders Donald and Doris Fisher, has been playing down talk that the San Francisco-based retailer is up for sale.

Weak customer traffic at its Gap and Old Navy chains resulted in an 8 percent decrease in comparable store sales for the 2006 holiday season, an improvement over the 9 percent decrease in 2005. Old Navy fared the worst of all brands, with a 10 percent decrease for the second year in a row.

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