Adrenalina issued yet another statement regarding the failure of Pacific Sunwear of California Inc. to explore merger discussions. The neophyte action sports retailer also said it is now a shareholder of PacSun and “intends to significantly increase its position in the near-term.” It also said it may take steps to seek removal of PacSun's directors if the retailer continues to refuse to engage in constructive dialogue.
“Adrenalina has contacted some of PacSuns largest shareholders and will continue to approach other PacSun shareholders to present Adrenalinas value-enhancing proposition.”
The full text of a letter dated November 20, 2008, from Ilia Lekach, Chairman and CEO of Adrenalina, is attached.
November 20, 2008
Pacific Sunwear of California, Inc.
Attn: Ms. Sally Frame Kasaks, Chairman & CEO
cc: Board of Directors
It has now been more than a month since we first made our proposal to acquire Pacific Sunwear of California, Inc. (“PacSun” or the “Company”) for $4.50 per share, which we subsequently increased to $5.00 per share on October 28, 2008. It was irresponsible for PacSuns Board to refuse to meet with us, and we are extremely disappointed that PacSun summarily rejected our full and fair proposal to combine our companies without even engaging in any substantive dialogue.
As you well know, shareholder value at PacSun has continued to deteriorate at staggering levels over the past month. As of yesterdays close, the Companys share price has declined precipitously to $1.37. Also, during the past month, the public equity markets and overall economic conditions have further deteriorated, both in general, and for retailers in particular, due to the continued pullback on consumer spending. In light of the sudden and steep deterioration in the Companys share performance and the continued operational weakness, we are hereby withdrawing our prior offer. However, neither PacSuns precipitous stock decline and disappointing third quarter financial results nor the Boards refusal to meet with us has changed our belief in the strategic and financial merits of a combined company.
We remain steadfastly determined in pursuing a strategic combination with PacSun and have retained Olshan Grundman Frome Rosenzweig & Wolosky LLP to act as our legal counsel and advise us in this matter. We have also recently spoken with several of PacSuns largest shareholders, and they expressed strong disappointment with the Board for failing to meet with us and expressed support for Adrenalinas initiative. Additionally, we are now a shareholder of the Company and intend to significantly increase our position. We are more confident than ever that moving forward promptly to consummate a transaction is in the best interest of all parties. We think it is irresponsible for the Companys Board to refuse to meet with us.
While management may seek to blame the economic climate for the decline in PacSuns same-store sales, this explicitly ignores the fundamental realities of the retail business environment and, in particular, the difficulties with the Companys retail model. We believe now is the time for our respective companies to authorize teams to negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders. We believe the experience of our management team at Adrenalina working with PacSun will allow us to capitalize on several important business synergies, including a combination of PacSuns substantial store footprint with our proven entertainment retailing concept, and create a more efficient and competitive company that is better equipped to deliver value in this challenging economic environment. We can discuss all the potential synergies in our meeting but, a couple major synergies include:
* Real Estate: Adrenalinas exclusive arrangement with the FlowRider(R) and foot traffic of over a million people a year per store has made us extremely meaningful to the malls and their developers. Landlords are paying Adrenalina to build out each store. The relationship Adrenalina has created with these landlords has proven to be incredibly beneficial for Adrenalina and we believe can be of value to PacSun as well.
* Revenue Growth: We are poised to grow our store footprint to include 200 stores in the United States and with considerable international interest, revenue growth will provide the combined company a growth engine it is currently lacking.
While it was our strong preference from the outset to communicate privately with the Company regarding a value-enhancing business combination, we were compelled to publicly set forth our acquisition proposal after our attempts to enter into discussions with the Company were repeatedly declined. We have decided to send this letter privately with the hope that the Board now stands ready to work cooperatively with us and engage in a constructive dialogue regarding a potential business combination. If, on the other hand, you continue to reject our overtures, we will be left with no choice but to pursue further public communication and take our case directly to your shareholders, including the initiation of a potential proxy contest to replace the existing Board with directors who are committed, subject to their fiduciary duties, to consummating a business combination with us. Based on our preliminary conversations with several of your largest shareholders, we believe a vast majority of your shareholders would fully support such a strategic combination.
We stand ready to meet with you and your representatives as soon as possible. We urge you not to let this window of opportunity pass.
Very truly yours,