Sun Capital Securities Group LLC is hoping the third time's the charm in its bidding for Kellwood Co. The private equity company late last night repeated its tender offer for the St. Louis-based vendor, but this time went directly to Kellwood shareholders and bypassed the company's board, which has twice rejected Sun Capital's bid.The offer is again for $21 a share in cash, or approximately $762 million, with the assumption of Kellwood's debt. Made through Sun Capital affiliate, Cardinal Integrated LLC, the bid is set to expire Feb. 12. Kellwood's stock Monday closed at $16.51. "Your continued unwillingness to enter into a constructive dialogue with us regarding our interest in acquiring control of Kellwood has left us no choice but to take our proposal directly to your shareholders," according to a letter sent Monday to Kellwood's board from Jason Bernzweig, vice president of Sun Capital.Sun Capital added it would lower the bid to $19.50 if Kellwood does not terminate its $60 million tender offer for the 7.875 percent notes due in 2009 the company made last week — a move Sun Capital asserts is ill advised and reduces equity value. "We simply cannot justify the premium set forth in our initial proposal if you continue to destroy equity value through ill-advised initiatives, including but not limited to the bond offer," said the letter, which also demanded access to Kellwood's books and records to investigate the impact of and motive behind the vendor's bond tender on shareholder value. "Repaying $60 million of notes is another clear example of financial mismanagement."Kellwood made the bond tender offer a week after unveiling a plan to buy back $80 million in stock, following completion of the sale of Smart Shirts, which netted the company $162 million in cash. Sources called the bond buyback a defensive move to clear the $1.6 billion group's cash coffers and ward off Sun Capital's takeover.If Kellwood does not reach an agreement with Sun Capital in the near term, the equity firm warned it will file preliminary proxy materials to nominate its own slate of directors for election at Kellwood's 2008 annual meeting. The back-and-forth between the vendor and Sun Capital, which owns 9.9 percent of Kellwood, has been going on since last fall."Importantly, we believe the board should also seriously consider that the stock is clearly trading on the prospect of a transaction," according to Sun Capital's letter Monday. "Since we made our initial offer, Kellwood's peer group has depreciated 27 percent, while the S&P Consumer Discretionary Index has declined 19 percent due to weakening fundamentals in the consumer sector. Conversely, during this time frame, Kellwood's stock has appreciated 7.5 percent, reflecting the significant value inherent in our buyout proposal. Accordingly, we believe Kellwood's stock price would decline significantly, likely to a level well below its trading price on Sept. 18, 2007, absent the prospect of a sale of the company. Therefore, our offer of $21 a share arguably represents a premium substantially greater than 38 percent relative to Kellwood's unaffected stock price."The bid is conditional upon not only the majority of Kellwood's shareholders accepting it, but also on the vendor's board making its supermajority voting provisions inapplicable to the offer. This might be unlikely, given the Kellwood board's resistance to Sun Capital's efforts thus far.
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