Gap Inc., one of America’s largest and most well-known retail chains, announced that it is splitting into two. On Thursday, Gap Inc. made a public announcement that claimed it is creating two publicly traded companies. Gap Inc. is looking to separate Old Navy, as well as a store that has yet to be named. The new company is going to consist of not only the Gap brand, but also the more expensive stores such as Banana Republic, Hill City, Intermix, and Athleta.
Gap Inc., the giant retailer initially based in San Francisco, says that the spin-off companies are going to allow each company to pare down their costs and become open to more flexibility.
The company also stated that it is going to shutter 230 Gap brand stores throughout two years.
After-market trading has shown that Gap Inc.’s stock has surged 24 percent.
The split up itself caused an extremely comprehensive board review, and while Old Navy has been thriving, both the Gap and Banana Republic have struggled.
Robert Fisher, the chairman of Gap Inc., stated that it’s evident that Old Navy’s current business model and client base have diverged drastically from Gap Inc.’s specialty brands over time. He also stated that each of the companies requires a different strategy to thrive as they go forward.
Art Peck, who is the current CEO for the Gap is going to take the CEO role at the new and unnamed company after the separation. The present Old Navy CEO, Sonia Syngal, is going to lead the brand as a stand-alone company that is separate from the Gap. Old Navy earns approximately $8 billion US in revenue annually. The new and unnamed company that Art Peck is going to run has roughly $9 billion in US revenue.
Upon the separation, Gap Inc.’s shareholders are expected to receive a pro-rated stock distribution. The stock distribution entitles shareholders to own equally proportioned shares in both Old Navy as well as the new company. The deal is expected to close sometime in 2020.
Gap Inc. also claimed that the new company is going to be based out of its current headquarters, and Old Navy is going to remain at its headquarters which is also located in San Francisco.
After the trade was announced, Gap’s shares rose from $6.21 to $31.61 in trading.