Aquamarine Capital Management LLC, a shareholder of Everlast Worldwide
Inc., asked the boxing equipment maker to reconsider a buyout offer
from New York-based Hidary Group. Aquamarine said Everlast's refusal to
negotiate with Hidary may represent a breach of the board's fiduciary
responsibility to obtain the best offer for its shareholders.
Everlast agreed to a $26.50-per-share offer from Hidary on June 1, but
later received a competing bid from Brands Holdings Ltd. for $30 per
share. Everlast terminated its deal with Hidary on June 28 to accept
the rival bid, although Hidary offered to boost its price to $30.55 per
share and make other changes to ensure a superior deal.
On Thursday, Hidary reported it filed a lawsuit to force Everlast to
honor a buyout agreement with the investor. Hidary's suit alleges that
Everlast breached its contract and “willfully refused to negotiate in
An Everlast spokeswoman said on Thursday it is company policy not to
comment on pending litigation. On Friday, Aquamarine said the board
hasn't conducted an open and transparent bid process to achieve the
highest possible offer. The investor agreed that Everlast should have
considered Hidary's revised bid superior to Brands Holdings' offer.
Aquamarine, which owns a 2.3% stake in the company, also criticized
Everlast for agreeing to breakup fees that make it more difficult for a
higher bid to emerge.
The full letter follows:
We are writing to the Board of Directors of Everlast Worldwide Inc.
(NasdaqNM, EVST) to express our displeasure at the handling of events
which have taken place since June 1, 2007, when the company first
agreed to be acquired by the Hidary Group for $26.50 per share. It
appears the board has not conducted an open and transparent “bid”
process designed to achieve the highest possible valuation for
shareholders. Rather, management and the board have been unusually
quick to sign a series of merger agreements with “break-up” fees (the
latest of which amounts to $5.8mm) which increasingly make it more
difficult and expensive for a higher potential bid to emerge.
Ultimately, the cost of these fees is borne by the shareholders of the
company as they prevent the highest potential bid from emerging.
On Friday, June 1st, Everlast Worldwide Inc. (NasdaqNM, EVST) announced
an agreement to be acquired by The Hidary Group for $26.50 per share.
On June 4th we issued a press release indicating we believed the offer
significantly undervalued the company. At the time we wrote:
“at the annual meeting, Everlast disclosed a 30-day “go shop”
period in which the board will evaluate competing bids for the company.
We mention this because this information was not included in this
morning's press release, which could lead current investors to conclude
that the $26.50 offer is final. Given the disparity between the offer
price and our view of fair value for this company, we would be
surprised if superior bids do not arise.”
As disclosed in public 13D filings, we note that subsequent to our June
4th press release, we entered into agreements to roll our shares into
the offer with Hidary Group at the price of $26.50 to maintain our
investment in Everlast after it was private as we considered that far
superior for our investors to selling our investment in Everlast at
$26.50 per share in the merger.
On June 28, Brands Holdings Limited submitted a competing offer of $30
per share. Hidary countered within four business days (as permitted in
their Merger Agreement) with a $30.55 per share offer. Rather than
consider the revised Hidary bid superior, the Board quickly moved to
accept the lower Brands Holdings offer, agreeing to pay Brands Holdings
a “break-up” fee of $5mm.
Notwithstanding what appears to be a lack of communication on the part
of the Board with the Hidary Group regarding Hidary Groups superior
offer of $30.55 per share, on June 29th Hidary Group further increased
its offer to $31.25 per share in a structure enabling all of the
shareholders to roll up to 50% of their investment into the private
company. Rather than negotiate directly with Hidary, Everlast in a
matter of hours accepted Brands Holdings increased bid of $33,
increased the “break up” fee it was willing to pay Brands Holdings to
$5.8mm and agreed to a “no shop” provision. You should know that we put
a high value on the option to roll our shares into the Hidary
It appears clear that for one reason or another, Everlast is determined
to get a deal done with Brands Holdings. The Hidary Group represents a
very legitimate bidder and has expressed its willingness to raise its
offer further if the break up fee is eliminated. The companys hasty
actions and further refusal to negotiate with Hidary Group, or we
presume, with any other potential bidder who may emerge (or has
emerged), may represent a breach of the Boards fiduciary
responsibility to entertain other potentially superior offers and
achieve the best offer possible for its shareholders.
We encourage the Board of Directors to slow down, step back, and go
back to the negotiating table with Hidary Group to better understand
the value of the roll-over structure to shareholders.
The emergence of ever higher competing bids over the past weeks
are a great indication of the value and potential of the brand. We see
no reason why the company is in such a rush to close inferior deals
(from a shareholders standpoint) with Brands Holdings and we see no
reason why the Board has been so quick to agree to ever-increasing
“break-up” fees which only act as a transfer of capital out of the
hands of shareholders and discourage the company from achieving the
highest bid possible.
Aquamarine Capital Management, LLC
152 West 57th Street
New York, NY 10019