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Barring any last-minute snags in the talks, an agreement could be announced as early as Tuesday when the retailer is expected to report its quarterly results, said the sources, who declined to be named because the talks were not public.

The deal would include a so-called "go shop" window that would allow J Crew to solicit superior offers, sources said. The go-shop period would last through the holidays, sources said, allowing potential suitors to see how the retailer performs through the crucial holiday shopping period.

J Crew, which sells upscale apparel for men and women, has a market capitalization of around $2.3 billion. An offer of $43.50 per share would mark a premium of just over 15 percent compared with Monday's closing share price of $37.65. J Crew's stock has fallen about 19 percent so far this year.

Under the terms of the deal, TPG would own 75 percent of the company and Leonard Green would own the remaining 25 percent, one source said. J Crew's Chairman and Chief Executive, Millard Drexler would also participate in the deal, one source said.

TPG had been a former owner of J Crew, buying an 88 percent stake for about $500 million in 1997. J Crew went public in 2006.

J Crew could not be immediately reached for comment. TPG declined to comment. Leonard Green could not be immediately reached for comment.

In August, J Crew gave lower-than-expected earnings forecasts for the third quarter and full-year 2010, citing "nervous" shoppers and promotions by competitors.

"The continued economic uncertainty that we're all seeing is leading us to take a more conservative outlook for the back half of the year," Chief Executive Millard Drexler said at the time.

The retailer, which sells upscale women's and men's apparel, accessories and shoes, operated 246 retail stores, the J Crew catalog business, jcrew.com and 81 factory outlet stores as of mid-year.

The New York Times' DealBook first reported the talks.

(Editing by Dhara Ranasinghe)