Sun Capital Securities Group, has sent a letter to the Board of Directors of Kellwood Company reaffirming its proposal to acquire 100% of the capital stock of Kellwood for $21.00 per share in cash.
The full text of the letter follows:
Members of the Board:
Sun Capital Securities Group, LLC (“Sun Capital”) hereby reaffirms its proposal of September 18, 2007 to acquire 100% of the capital stock of Kellwood Company for $21.00 per share in cash. We are prepared to bridge the entire purchase price from our own capital and, as such, our proposal has no financing contingency.
We are very disappointed that you rejected this proposal on October 17 and have repeatedly resisted our efforts to open a constructive dialogue regarding our interest in acquiring control of Kellwood. We have carefully reviewed the strategic plan Kellwood announced on November 7 and note that it resembles the plan announced in mid-2005. The lack of execution since mid-2005 has resulted in a significant deterioration in both financial results and shareholder value. We believe that receiving $21.00 per share in cash now represents superior value for shareholders, especially on a risk-adjusted basis, compared to what they can expect to realize through Kellwoods pursuit of its long-term plan. Consider the following facts:
At $21.00 per share in cash, Sun Capitals offer represents:
- A 38% premium to Kellwoods closing stock price on September 18, 2007, the last trading day before disclosure of our offer
- A 40% premium to Kellwoods closing stock price on November 7, 2007, the day after Kellwood announced its latest strategic plan
- A 32% premium to Kellwoods latest closing stock price on November 9, 2007
Kellwoods earnings guidance is extremely aggressive by any objective measure. The FY2008 guidance represents year-over-year growth in excess of 100% (and 48% before the effect of announced cost savings and the transformation of Phat Farm mens business to solely a licensing model), and Kellwoods long-term plan calls for 25% compound annual EPS growth. This projected growth significantly exceeds each of the Companys peers and is far greater than anything Kellwood has ever achieved in the past. This disconnect is of great concern given Kellwoods established track record of performing below expectations, which further calls into question the achievability of these targets. The Company has revised its annual guidance downward in each of the last five years, has failed to achieve performance benchmarks communicated to shareholders, and continues to take actions that contradict previously articulated strategic plans. Clearly, any missteps in meeting your new targets will lead to further erosion of value. Having endured the worst stock price performance in the peer group over the past five years, shareholders are entitled to tangible evidence that Kellwoods performance is validating these aggressive projections.
Our strong preference is to acquire Kellwood in a friendly negotiated transaction, but we are prepared to take all necessary steps to protect the value of our existing 9.9% ownership position in Kellwood, including making a $21.00 per share offer directly to Kellwoods other shareholders. We have extensive investment experience with apparel companies in wholesale and retail channels, as well as numerous companies within the broader consumer sector — and your employees and customers should know that we are prepared to commit substantial resources beyond the purchase price to build Kellwoods business over time.
Consistent with our disclosure obligations, we are amending our 13-D filing to make this letter public. We are available to meet immediately with you and your representatives to negotiate a mutually beneficial transaction. Please let us know how you would like to proceed.
Jason G. Bernzweig
Sun Capital Securities Group, LLC
Kellwood Company, in turn, issued its own letter rejecting the Sun Capital proposal:
“Yesterday's letter from Sun Capital simply reiterates the terms of its
September 18, 2007 proposal. As previously announced, after a careful
review with the assistance of the Company's independent financial
advisors, the Board of Directors concluded that Sun Capital's unsolicited
proposal significantly undervalues the strength of Kellwood's expanded
portfolio of brands and the Company's opportunities for sales and earnings
growth, including the potential benefits of the execution of the Company's
strategic plan. The Board therefore unanimously determined that the
proposal was not in the best interests of Kellwood and its shareholders.
The Kellwood Board strongly believes in the Company's ability to
successfully execute its strategic plan and provide greater value to its
shareholders than Sun Capital's proposal. As evidenced by the actions
already undertaken, and through the continued execution of this plan,
Kellwood is positioned to become a brand-focused marketing enterprise,
leading to sustained sales growth and double digit increases in net
earnings and earnings per share.”
Banc of America Securities LLC is acting as financial advisor, and McDermott Will & Emery is serving as legal counsel, to Kellwood.