Tiny action sports retailer Adrenalina last week revealed that it withdrew its $5-per-share offer to buy Pacific Sunwear of California due to the steep decline in prices of PacSun's shares. But it now plans to take a buyout offer directly to shareholders in a possible proxy fight. In response, PacSun again rejected merger discussions but for the first time elaborated on why a combination wouldn't make sense.

Adrenalina's statement included a letter from its CEO Ilia Lekach to Pacific Sunwear CEO Sally Frame Kasaks dated November 20 that disclosed that while it had withdrawn its offer, the company remains “steadfastly determined in pursuing a strategic combination with PacSun.” It has hired legal counsel for advice on the matter and had spoken with several of PacSun's largest shareholders who “expressed strong disappointment” over PacSun's board's refusal to enter into merger discussions.


Finally, Lekach wrote that Adrenalina now owns a stake in PSUN and plans to significantly increase its number of shares for a possible takeover.  He also reiterated what it believes are the benefits of a possible merger, including combining PacSun's substantial store footprint “with our proven entertainment retailing concept.” 

In its response, Kasaks wrote in a letter to Lekach that PacSun's management, with the board's full support, remains committed to its turnaround efforts and noted that in its own recent talks with major shareholders, “they have not expressed support for a business combination with Adrenalina.”

She also noted that such a combination doesn't make sense due to the small size of Adrenalina, its continued losses and its weak capital position.