Aquamarine Capital, an Everlast shareholder, believes buyout of Everlast at $26.50 is under-priced and the fair value of the company is in excess of $50 per share. Everlast Worldwide Inc. announced an agreement to be acquired by The Hidary Group for $26.50 per share. This represents a modest premium of 14% to the prior closing price and a total value of $146 million.
The release stated, “While we commend management (in particular Seth Horowitz, CEO) for an exceptional job of resurrecting Everlast over the past several years, we believe this offer significantly undervalues both the brand and the company. As current shareholders who have so far accumulated 2.3% of the company, we intend to vote against the takeover proposal.
“With such a remarkable heritage and extensive media exposure, Everlast is perhaps the only company we know of that can successfully compete with global juggernauts such as Nike (NYSE, NKE), Adidas (Deutsche Boerse, ADI,) and Puma (Deutsche Boerse, PUM.)
“The $26.50 takeover price equates to less than 12x FY 2007 EBITDA guidance. Given management's recent history of conservative guidance, coupled with the buyer being closely associated with a current Everlast licensee, we believe that recent guidance will likely prove conservative, bringing the multiple closer to 10x if not lower.
“Other fast-growing athletic and performance oriented consumer brands with lesser brand recognition, are valued at multiples which are 2x-3x greater. Assuming $15mm in EBITDA generation by 2008 (an arguably conservative estimate), a $50 share price for Everlast would equate to 18x EBITDA. Furthermore, $50/share represents a 30%-40% discount to the current value of comparables companies like Under Armor (UA, NYSE, $47.68, 31x EV/EBIDA), and would come much closer to representing fair value for current shareholders, in our view.
“At this morning's 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.”
