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Amazon in Talks to Buy Bankrupt J.C. Penney

Amazon

Amazon (NASDAQ: AMZN) is reportedly in talks with bankrupt J.C. Penney (NYSE: JCP)  in a deal that would boost the online retailer’s clothing business, according to Women’s Wear Daily.

Shares in J.C. Penney plunged another 23% to $0.18 before being halted on Monday. The report comes after the US clothing and home department store filed for bankruptcy protection proceedings on Friday.

However, the acquisition of a 118-year-old Plano-based company retailer by Amazon wouldn’t be costly due to its bankrupt status, the depressed stock price, and high debt level.

“There is an Amazon team in Plano. There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure,” reported Women’s Wear Daily on Monday.

The potential acquisition of the apparel chain is in line with Amazon’s strategy of expanding its retail footprint across the US, with the Big Tech giant interested in all or part of the business. However, reports also suggest that the world’s largest online retailer could convert J.C. Penney stores to its own high-tech retail format.

“This could be a new tech-driven retail model or Amazon could also convert some J.C. Penney sites into distribution centers,” Women’s Wear Daily sources say.

Amazon closed 0.88% up yesterday at $2,426.26. It is currently up 0.36% in premarket trading on Tuesday. The stock has jumped by almost 28% this year.

Last Friday, the struggling department retailer officially filed for Chapter 11 bankruptcy protection, with plans of closing 242 stores to improve its operating margins. J.C. Penney had close to 830 stores at the end of the last year.

JC Penny

J.C. Penney has $500m in cash on hand as of the Chapter 11 filing date, the retailer said in a Securities and Exchange Commission filing. In addition, the company received commitments for $900m in financing from its existing first lien lenders, which includes $450m of new money.

The long-struggling J.C. Penney stock is now considered among the penny stocks because its shares are trading below $1 level following the massive share price selloff in the past twelve months. The retailer was struggling well before the health crisis as the department store chain has been unprofitable over the past nine years, with its revenue falling year over year over the last four years in a row.

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    Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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