Kellwood Company entered into a merger agreement with Sun Capital providing for a prompt merger if Sun Capital's tender offer is successful on February 12. The KWD Board of Directors is now recommending that stockholders tender their shares into the offer. The merger agreement provides that once shares are paid for in the tender offer, Sun Capital will take control of the Kellwood Board of Directors.
Last week, Sun Capital urged KWD shareholders to accept the firms offer.
“Since then, Kellwoods peer group and the S&P Consumer Discretionary Index have experienced significant declines due to weakening fundamentals in the consumer sector,” said a Feb. 6 letter from Jason Bernzweig, a Sun Capital vice president. “Accordingly, we believe Kellwoods stock price would decline significantly, likely to a level well below its trading price on September 18, 2007, in the absence of a sale of the Company.”
Sun Capital, which invests in leveraged buyouts, equity, debt and other investments in marketleading companies argues that Kellwood has badly mismanaged its brands, reduced or missed initial earnings guidance for five years running and lost half its equity value since 1988.
Sun Capital's offer represents 7.7 times Kellwood's trailing-twelve-month EBITDA, 21.2 times 2007 estimated earnings per share and 14 times estimated 2008 earnings per share. Kellwood's board said it would not block Sun Capital's offer if Sun Capital accumulates a majority of Kellwood's shares. As of Feb. 6, Sun Capital owned 11.4% of Kellwood.
