The Wall Street Journal-20080115-Sun Capital Affiliate Plans Kellwood Bid
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Sun Capital Affiliate Plans Kellwood Bid
An affiliate of Sun Capital Securities Group LLC is expected to launch a hostile tender offer today to purchase the shares outstanding of apparel maker Kellwood Co. that it doesn't already own.
The Sun Capital affiliate, Cardinal Integrated LLC, is offering $21 a share, the same price that Kellwood twice rejected last fall. It represents a 38% premium over Kellwood's closing price on the last trading day before the offer was made public in September.
Shares of the St. Louis-based maker of Sag Harbor, Phat Farm and other midpriced apparel labels yesterday fell 36 cents, or 2.2%, to $16.51 apiece at 4 p.m. in New York Stock Exchange composite trading.
The Boca Raton, Fla., investment firm, which owns 9.9% of Kellwood's common shares outstanding, said it will reduce its offer to $19.50 a share if Kellwood doesn't terminate a $60 million tender offer of its senior notes that it announced last week. Sun Capital last week sent a letter to Kellwood's board calling the tender offer "ill-advised" and "value-destructive" and asking the company to terminate it.
It is unclear whether the offer will be successful. Some Kellwood shareholders have said that $21 a share is insufficient. Michael Garland, director of value strategies for CtW Investment Group, which works with pension funds that own less than 1% of Kellwood shares, said this month that the offer price was too low.
In a separate letter it sent to Kellwood, Sun Capital is demanding access to Kellwood's records and books in order to investigate the impact of the bond tender on shareholder value and ascertain whether the company's board breached its fiduciary duties by issuing a tender as a takeover defense, even if it had a negative impact.
If an agreement isn't reached by March, Sun Capital plans to nominate its own slate of directors for election to Kellwood's board at the annual meeting in June, according to people familiar with the matter. The tender offer is set to expire at midnight EST Feb. 12.
Kellwood has a "poison pill" that bars any one shareholder from owning more than 20% of its shares as well as a requirement that 75% of the shareholder vote is required for approval of a takeover instead of the usual simple majority. Sun Capital has said that a condition of its offer is that Kellwood rescind its poison-pill measures.
