Rawlings shares closed down 12.1% for the week to close at $7.70 on Friday after K2s CEO said that certain conditions of its proposed deal to buy Rawlings Sporting Goods Inc. had not been met.
K2 shares were down 4.0% for the week and off 20% since November 1, 2002, closing at $8.00 on Friday.
K2 proposed in December 2002 to buy Rawlings for at least $74 million in stock by converting each share of RAWL into 0.95 share of KTO. Under terms of the deal, K2 will not pay more than $10 a share or less than $9 a share for Rawlings.
Richard Heckmann, K2’s chairman and CEO said KTO will be unable to close the deal unless it can reach agreements to transfer certain contracts Rawlings holds with its commercial partners over to K2.
Heckmann made the remarks Thursday in private conversations with certain members of the financial committee. The company furnished the information under Regulation FD. He is expected to be the keynote speaker today at the Roth Capital Partners 15th Annual Growth Stock Conference.
The number of side deals may be frustrating for K2. Rawlings revealed in its 10-K filed in November that any change of control of the company must be approved by Major League Baseball and the 19 Minor Leagues, the NCAA and the National Federation of High Schools or the deals with each could be terminated.
“I have to say, this is a serious issue,” Heckmann said. “Without these consents, this deal does not go through. I will not close without them.”
In the November filing, RAWL indicated that, “The loss of the Major League Baseball exclusive supplier contract could have a material adverse effect on the Company’s sales.” RAWL had determined that the cost of its Major League Baseball uniform contract was not an “economically justifiable expense” and did not renew the contract when it expired in December 2002.
Heckman also said K2 has the right to terminate the deal ahead of a March 26th meeting of Rawlings shareholders if K2’s average daily closing share price drops below $8 for 15 consecutive days.
If its share price breaches that level, “the exchange ratio in the proposed transaction may not make financial sense for the company,” K2 said. Heckmann said K2 would be willing to “pull out and start the process over,” renegotiating new terms for a deal if its share price dropped below the $8 average.
>>> Sales of baseball-related products constituted approximately 63% of the total net revenues of Rawlings in the year ended August 31, 2002, making the MLB contract critical to the health of the company
