HanesBrands is being bought out, but the stock is falling. Here's why.

HanesBrands (HBI) officially agreed to be acquired by Gildan Activewear (GIL) for an enterprise value of approximately $4.4 billion, including debt, and an equity value of $2.2 billion. HBI shares subsequently declined 7.6% in premarket trading, reversing much of Tuesday's 28% surge, as the announced cash-and-stock deal terms valued the company at a discount to its Tuesday closing price, underperforming investor expectations fueled by an earlier Financial Times report. The transaction, expected to close in late 2025 or early 2026, aims to create a larger global apparel player with $200 million in annual cost savings, despite initial investor disappointment regarding the valuation and the dilutive nature of the stock component for Gildan.

Analysis

Gildan Activewear's acquisition of HanesBrands has been met with negative investor sentiment, primarily due to a valuation gap between market expectations and the deal's final terms. An earlier Financial Times report suggesting a potential enterprise value near $5 billion catalyzed a 28% surge in HanesBrands' stock. However, the official cash-and-stock deal was announced at a lower enterprise value of approximately $4.4 billion, which translated to a 6% discount to HanesBrands' post-rally closing price, triggering a subsequent 7.6% premarket decline. The acquirer, Gildan, also saw its shares fall, a typical reaction to stock-based deals due to shareholder dilution. While management from both firms promotes the deal's strategic rationale, citing the creation of a global apparel leader and $200 million in annual cost synergies, the market's immediate reaction reflects disappointment in the pricing. The long closing timeline, extending to late 2025 or early 2026, introduces a significant period of execution and market risk for investors in both companies.

Key Decisions for Investors

• Investors should note that the value of the deal for HanesBrands shareholders is directly tied to Gildan's stock performance, creating a floating value proposition that carries risk until the deal's close in late 2025 or early 2026.
• Merger arbitrageurs should carefully weigh the discount in HanesBrands' stock against the considerable time horizon and the risk associated with the stock component of the payment, which makes the final takeout value uncertain.
• Gildan shareholders should scrutinize the company's ability to achieve the projected $200 million in annual synergies, as realizing these savings will be critical to justifying the acquisition and mitigating the dilutive impact of the new share issuance.
• The market's adverse reaction to the confirmed deal terms, following a rally on speculation, underscores the importance of valuing the transaction based on the announced $4.4 billion enterprise value rather than prior, unconfirmed reports.