French Connection Group PLC (LON:FCCN) shares jumped on Monday after saying it is reviewing its strategic options, which includes the potential sale of the business.
The fashion retailer said there can be “no certainty that an offer will be made for the company or as to the terms on which any offer will be made”.
Media reports at the weekend said the company’s founder, Stephen Marks, was looking to sell his 42% stake in the business, 46 years after creating the brand.
The news has sparked speculation that Mike Ashley’s Sports Direct International PLC (LON:SPD) may launch a bid for French Connection.
Sports Direct, which bought House of Fraser after it entered administration in August, already has a 27% stake in French Connection. If the sportswear retailer increased its stake by 3% it would be required to launch a formal takeover bid.
Last year activist investor Gatemore Capital urged Marks to consider selling the company.
Sky News reported that advisors at Numis have approached private equity firms and other fashion retailers.
In September, French Connection said it expects to return the business to profitability this year on the back of a cost-cutting drive, including the sale of its 75% stake in the Toast brand to the Bestseller Group for £11.7mln.
READ: French Connection shares drop as revenues fall amid tough UK retail market
Shares shot up 27% to 54.5p in morning trading.
“French Connection has long been seen as a value trap – the business contains hidden value but ongoing problems with trading have seen the share price remain weak," said Russ Mould, investment director at AJ Bell.
"A sale of the business could help to lift it out of the ‘trap’ as long as the suitor is prepared to invest some time and money in sorting out the bad bits and nurturing the good bits.
“At the half-year stage (31 July), French Connection had a £12.8mln net cash position which equated to nearly one-third of the company’s market value before today’s news triggered a hike in the share price."