Gap Inc. Announces Plan to Separate into Two Independent Publicly Traded Companies

Old Navy to Become Standalone Company

Separation Will Enable Both Companies to Capitalize on Distinct
Priorities, Growth Drivers and Unique Positioning in Evolving Apparel
Market

SAN FRANCISCO–(BUSINESS WIRE)–Gap
Inc.
(NYSE: GPS) today announced plans to create two independent
publicly traded companies: Old Navy, a category-leader in family
apparel, and a yet-to-be-named company (“NewCo”), which will consist of
the iconic Gap brand, Athleta, Banana Republic, Intermix and Hill City.
Gap Inc. expects to effect the separation through a spin-off that is
intended to generally be tax-free to Gap Inc.’s shareholders for U.S.
federal income tax purposes. The spin-off will enable each company to
maximize focus and flexibility, align investments and incentives to meet
its unique business needs and optimize its cost structure to deliver
profitable growth.

“Following a comprehensive review by the Gap Inc. Board of Directors,
it’s clear that Old Navy’s business model and customers have
increasingly diverged from our specialty brands over time, and each
company now requires a different strategy to thrive moving forward,”
said Robert Fisher, Gap Inc.’s Board Chairman. “Recognizing that, we
determined that pursuing a separation is the most compelling path
forward for our brands – creating two separate companies with distinct
financial profiles, tailored operating priorities and unique capital
allocation strategies, both well positioned to achieve their strategic
goals and create significant value for our customers, employees and
shareholders.”

Art Peck, President and CEO of Gap Inc., added, “We have made
significant progress executing on our balanced growth strategy and
investing in the capabilities to position our brands for growth:
expanding the omni-channel customer experience, building our digital
capabilities and improving operational efficiencies across the company.
Today’s spin-off announcement enables us to embed those capabilities
within two stand-alone companies, each with a sharpened strategic focus
and tailored operating structure. As a result, both companies will be
well positioned to capitalize on their respective opportunities and act
decisively in an evolving retail environment.”

NewCo

NewCo, with approximately $9 billion in annual revenue and a strong
balance sheet, will have a unique and differentiated portfolio, with
significant opportunity to create value. The company will be well
positioned to drive sustainable growth and improve profitability by
leveraging its loyal and complementary customer base and an
appropriately scaled operating platform with advantaged digital
capabilities to deliver distinct products and experiences. With enhanced
strategic and operational focus, it can deliver improved results at Gap,
Banana Republic and Intermix, while capitalizing on the momentum of
B-Corp certified Athleta and newly-launched Hill City. The program
announced today to restructure the Gap brand specialty fleet is an
important part of the plan to enhance the profitability of that channel.
As a stand-alone company, NewCo also will be better positioned to
continue to evolve its leadership role in sustainability and social
responsibility.

Old Navy

As one of the fastest growing apparel brands in the U.S. with
approximately $8 billion in annual revenue, Old Navy will be able to
capitalize on its scale, broad customer awareness and unique positioning
to extend its category leadership and deliver profitable growth as an
independent company. Through this separation, Old Navy will have the
flexibility, focus and control needed to increase customer access by
further applying its strategic real estate strategy, evolving its
omni-channel model and expanding its product categories to continue to
successfully resonate with value-focused customers. Old Navy will be
well positioned to invest in capabilities and initiatives that will
continue to grow its market share.

Management

Both companies will have experienced leadership teams, well suited to
lead these organizations on their separate, defined paths.

Gap Inc.’s current President and Chief Executive Officer, Art Peck, will
hold the same position with NewCo after the separation. With more than a
decade of retail leadership experience, Mr. Peck is well positioned to
lead NewCo going forward. Over the last several years, he has led
significant improvements at Gap Inc. and reinvigorated growth across
several specialty brands by strengthening the supply chain and pivoting
quickly to leverage technology and capitalize on new customer trends.

Following the separation, Sonia Syngal, current President and Chief
Executive Officer of Old Navy, will continue to lead the brand as a
standalone company. Ms. Syngal — who has led Old Navy since 2016 — has a
proven track record of leading Old Navy’s transformation and driving
product-to-market innovations, as well as deep experience in supply
chain and manufacturing in both retail apparel and other industries.

Transaction Details

Upon separation, Gap Inc. shareholders are expected to receive a
pro-rata stock distribution and as a result own shares in both NewCo and
Old Navy in equal proportion. The transaction is currently targeted to
be completed in 2020, and is subject to certain conditions, including
final approval by Gap Inc.’s Board of Directors, receipt of a tax
opinion from counsel and the filing and effectiveness of a registration
statement with the U.S. Securities and Exchange Commission. There can be
no assurances regarding the ultimate timing or terms of the separation
or that the separation will be completed.

After the separation, NewCo and Old Navy are expected to be
appropriately capitalized with sufficient cash to support planned
operating and investment plans.

NewCo will be based in Gap Inc.’s current headquarters and Old Navy will
remain at its current headquarters, both located in San Francisco.

Morgan Stanley & Co. LLC is serving as financial advisor and Wachtell,
Lipton, Rosen & Katz is serving as legal advisor to Gap Inc.

Fourth Quarter and Full Year Fiscal 2018 Results and Conference Call
Information

Gap Inc. also today announced its fourth quarter and full year fiscal
2018 financial results in a separate press release that can be found on
Gap Inc.’s website at www.gapinc.com.
Gap Inc. management – including Art Peck, Gap Inc.’s President and CEO;
Teri List-Stoll, Gap Inc.’s Executive Vice President and CFO – will
discuss this announcement as well as its financial results on its
previously scheduled conference call and webcast from approximately 2:00
p.m. to 3:00 p.m. Pacific Time today.

The conference call can be accessed by calling 1-855-5000-GPS or
1-855-500-0477 (participant passcode: 5575210). International callers
may dial 1-323-794-2078. The webcast can be accessed at www.gapinc.com.

For additional information on the separation, please visit the dedicated
transaction website at www.gapinc.transactionannouncement.com.

Forward-Looking Statements

This press release contains forward-looking statements within the “safe
harbor” provisions of the Private Securities Litigation Reform Act of
1995. All statements other than those that are purely historical are
forward-looking statements. Words such as “expect,” “anticipate,”
“believe,” “estimate,” “intend,” “plan,” “project,” and similar
expressions also identify forward-looking statements. Forward-looking
statements include statements regarding the following: relating to
future sales, earnings, cash flow, results of operations, uses of cash,
and other measures of financial performance or potential future plans,
strategies or transactions of the company or the independent companies
following the proposed separation transaction, the structure, benefits,
capitalization, and timing of completion of the separation transaction,
and estimated costs associated with the separation transaction.

Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause the
company’s actual results to differ materially from those in the
forward-looking statements. These factors include, without limitation,
the following risks, any of which could have an adverse effect on the
company’s financial condition, results of operations, and reputation:
the risk that additional information may arise during the company’s
close process or as a result of subsequent events that would require the
company to make adjustments to its financial information; the risk that
the company or its franchisees will be unsuccessful in gauging apparel
trends and changing consumer preferences; the highly competitive nature
of the company’s business in the United States and internationally; the
risk of failure to maintain, enhance and protect the company’s brand
image; the risk of failure to attract and retain key personnel, or
effectively manage succession; the risk that the company’s investments
in customer, digital, and omni-channel shopping initiatives may not
deliver the results the company anticipates; the risk if the company is
unable to manage its inventory effectively; the risk that the company is
subject to data or other security breaches that may result in increased
costs, violations of law, significant legal and financial exposure, and
a loss of confidence in the company’s security measures; the risk that a
failure of, or updates or changes to, the company’s information
technology systems may disrupt its operations; the risk that trade
matters could increase the cost or reduce the supply of apparel
available to the company; the risk of changes in the regulatory or
administrative landscape; the risks to the company’s business, including
its costs and supply chain, associated with global sourcing and
manufacturing; the risk of changes in global economic conditions or
consumer spending patterns; the risks to the company’s efforts to expand
internationally, including its ability to operate in regions where it
has less experience; the risks to the company’s reputation or operations
associated with importing merchandise from foreign countries, including
failure of the company’s vendors to adhere to its Code of Vendor
Conduct; the risk that the company’s franchisees’ operation of franchise
stores is not directly within the company’s control and could impair the
value of its brands; the risk that the company or its franchisees will
be unsuccessful in identifying, negotiating, and securing new store
locations and renewing, modifying, or terminating leases for existing
store locations effectively; the risk of foreign currency exchange rate
fluctuations; the risk that comparable sales and margins will experience
fluctuations; the risk that changes in the company’s credit profile or
deterioration in market conditions may limit the company’s access to the
capital markets; the risk of natural disasters, public health crises,
political crises, negative global climate patterns, or other
catastrophic events; the risk of reductions in income and cash flow from
the company’s credit card agreement related to its private label and
co-branded credit cards; the risk that the adoption of new accounting
pronouncements will impact future results; the risk that the company
does not repurchase some or all of the shares it anticipates purchasing
pursuant to its repurchase program; the risk that the company will not
be successful in defending various proceedings, lawsuits, disputes, and
claims; risks associated with the impact, timing or terms of the
separation transaction; the risks associated with the expected benefits
and costs of the separation transaction, including the risk that the
expected benefits of the separation transaction will not be realized
within the expected time frame, in full or at all, and the risk that
conditions to the separation transaction will not be satisfied and/or
that the separation transaction will not be completed within the
expected time frame, on the expected terms or at all; the expected
qualification of the separation transaction as a tax-free transaction
for U.S. federal income tax purposes, including whether or not an IRS
ruling will be sought or obtained; the risk that any consents or
approvals required in connection with the separation transaction will
not be received or obtained within the expected time frame, on the
expected terms or at all; risks associated with expected financing
transactions undertaken in connection with the separation transaction
and risks associated with indebtedness incurred in connection with the
separation transaction; the risk that dissynergy costs, costs of
restructuring transactions and other costs incurred in connection with
the separation transaction will exceed our estimates; and the impact of
the separation transaction on our businesses and the risk that the
separation transaction may be more difficult, time-consuming or costly
than expected, including the impact on our resources, systems,
procedures and controls, diversion of management’s attention and the
impact on relationships with customers, suppliers, employees and other
business counterparties. There can be no assurance that the company’s
separation transaction will in fact be completed in the manner described
or at all.

Additional information regarding factors that could cause results to
differ can be found in the company’s Annual Report on Form 10-K for the
fiscal year ended February 3, 2018, as well as the company’s subsequent
filings with the Securities and Exchange Commission.

These forward-looking statements are based on information as of February
28, 2019. The company assumes no obligation to publicly update or revise
its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will
not be realized.

About Gap Inc.

Gap Inc. is a leading global retailer offering clothing, accessories,
and personal care products for men, women, and children under the Old
Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands.
Fiscal year 2018 net sales were $16.6 billion. Gap Inc. products are
available for purchase in more than 90 countries worldwide through
company-operated stores, franchise stores, and e-commerce sites. For
more information, please visit www.gapinc.com.

Contacts

Investor Relations Contact:
Tina Romani
(415) 427-5264
[email protected]

Media
Relations Contacts:

Sarah Meron
(415) 427-3145
[email protected]

Sard
Verbinnen & Co
John Christiansen/Meghan Gavigan/Devin Broda
(415)
618-8750; (212) 687-8080

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