Canadian apparel maker Gildan Activewear Inc said on Tuesday it had won a bankruptcy auction to buy U.S. fashion retailer American Apparel LLC for about $88 million in cash.
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Gildan's Toronto-listed and U.S.-listed shares rose more than 3 percent in morning trading, hitting their biggest intraday percentage gain in nearly 2 months.
The deal is subject to approval from a bankruptcy court on Thursday, the company said.
Under the deal, Gildan will acquire the intellectual property rights related to the American Apparel brand and certain manufacturing equipment.��The company, however, will not buy any of the 110 American Apparel retail stores.
"With Gildan dominating in the basics category of the $4.5 billion print-wear market, the fashion and performance categories represent particularly attractive growth opportunities," Raymond James analysts said.
Reuters reported late on Monday that the company had won the bankruptcy auction, which also attracted other bidders such as California-based apparel maker Next Level.
American Apparel filed its second Chapter 11 in November with about $177 million in debt after the failure of a turnaround plan.
The company had filed for its first Chapter 11 in October 2015, and emerged from bankruptcy early last year.
Guggenheim Securities LLC is acting as Gildan's financial adviser, while Sullivan and Cromwell LLP are providing legal advice.
Up to Monday's close, Gildan's Toronto-listed stock had fallen about 11 pct in the last 12 months.
(Reporting by Siddharth Cavale and Komal Khettry in Bengaluru; Editing by Shounak Dasgupta)