By and  on September 23, 2005

NEW YORK — Mossimo Inc. and Mossimo Giannulli said they reached an agreement for the outstanding publicly held minority shares of Mossimo at $5 a share. But there's a good chance the deal won't happen as shareholders push for a higher price.

Institutional investors and hedge funds lit up the phones following the Mossimo announcement Thursday morning. They discussed between themselves what the appropriate price-per-share should be, and whether or not to vote in favor of the deal.

A hedge fund manager whose firm owns shares of Mossimo, but spoke on the condition of anonymity, said $5 a share is too low. "It's worth much more," he said. "It's just an absolute farce. It's worth well more than $6 a share."

The hedge fund manager said he doesn't think the board will get the majority approval it needs from existing shareholders who hold the shares Giannulli doesn't. The manager's firm, along with a few other investors, collectively own 14 percent of the 35 percent of shares not owned by Giannulli.

The fund manager said he does not plan to approve the buyout offer. He said the Mossimo board was aware of his firm's feelings because he had been in contact with the board prior to the new tender offer.

As reported, Giannulli, chairman and co-chief executive officer, owns about 65 percent of Mossimo. He made an offer on April 11 to acquire the same shares for $4 each. On Aug. 16, he withdrew that bid and shares of Mossimo, which had climbed to a 52-week high in over-the-counter trading the week before when it hit $6.20, closed at $4.90 the day of the withdrawal.

Shares of Mossimo on Thursday closed at $4.99, up 1 cent, a penny shy of the $5 offer price.

"The shares are worth at least $7.50. We're not tendering [our shares]. You don't come back later when you've walked away and say I'm now upping the offer after the stock price has dropped. That's [not fair]. In addition, the $5 per share amount doesn't include the Modern Amusement contribution. This is not a fair deal," said another portfolio manager, who said he sent a letter to the Mossimo board. He also requested anonymity because of company policy.While the core Mossimo brand is available only at Target Stores through a licensing arrangement, the Modern Amusement brand has been the focus of investors. The Modern Amusement line, which has higher price points than the Mossimo brand, is said by financial analysts to be doing well and is considered the growth vehicle for the company.

At another institutional investment house, a portfolio manager said, "The extra dollar [from $4 to $5] may represent a 25 percent increase, but it is still too low. It doesn't reflect the true value of the company."

This fund manager, like the others, also said that his firm sent a letter to the board expressing its disappointment in the offers.

"We're not planning on voting in favor, he said.

Modern Amusement is sold mostly at specialty stores, such as Fred Segal, and at select department stores, such as Macy's. The line features men's apparel, with a women's line still on the drawing board, according to the Modern Amusement Web site.

Under the terms of the agreement, the transaction will be structured as a cash tender offer by Mossimo Acquisition Corp., a wholly owned subsidiary of Mossimo Holding Corp., which is itself a corporation that is wholly owned by Giannulli. The offer will commence in two weeks, and following completion of the tender of shares, the acquisition company will merge into Mossimo Inc., which in turn will become a subsidiary of the Giannulli-controlled entity.

Edwin Lewis, president and co-ceo officer of Mossimo, could not be reached for comment.

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