CtW Investment Group, which invests pension funds sponsored by seven unions that own less than 1 percent of Kellwood Co. stock, has urged the company’s board to name a special committee of independent directors to explore strategic alternatives, including selling the troubled $1.6 billion vendor.
Pressure has been mounting on the St. Louis-based apparel company since private equity firm Sun Capital Securities Group, its second-largest shareholder, issued — then reissued — an unsolicited $543 million bid for Kellwood in the fall. Kellwood twice turned down the $21-a-share offer, saying it undervalued the company.
Citing "the failure of Kellwood’s independent directors to open a constructive dialogue with [Sun Capital Securities Group] regarding its interest in acquiring Kellwood," CtW Investment Group sent a letter to the company on Tuesday asserting that "the board may be more interested in protecting management than maximizing value for shareholders."
The CtW Investment Group represents an estimated six million union members who own about 198,000 shares of Kellwood common stock.
"While we consider Sun’s current offer inadequate, Sun is a qualified buyer, has made a serious offer and has said it is open to alternatives," said the letter from William Patterson, CtW executive director, to Harvey Weinberg, Kellwood board member and chair of Kellwood’s corporate governance committee. "Kellwood has lost 50 percent of its market value in the past year. A sale to Sun or another buyer could enable shareholders to realize value without bearing the execution risk of Kellwood’s long-term plan, a compelling option, given the plan’s optimistic 25 percent annual EPS growth assumption and Kellwood’s poor historical performance."
In response, Kellwood said in a statement: "Kellwood’s board of directors is committed to acting in the best interest of the company and all Kellwood stockholders. On two separate occasions, the board 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 was assisted in its reviews by the company’s independent financial adviser. 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."
In the fall, Kellwood restructured its women’s sportswear division, and a month later, it presented a plan outlining its five-year strategies, including selling its dress shirt manufacturing division Smart Shirts.