By  on April 19, 2006

NEW YORK — Mossimo Inc. on Tuesday said its board would meet to evaluate an unsolicited proposal from Cherokee Inc. to acquire the outstanding shares of the company for $8.50 a share, $6 a share in cash and $2.50 a share in Cherokee stock.

Mossimo said in its statement that it was too early to say whether the Cherokee proposal is superior to the proposed Mossimo/Iconix Brand Group deal announced on April 3. Under the Iconix agreement, shareholders would receive $4.25 a share in cash and $3.25 a share in Iconix stock. Iconix's banker could not be reached for comment.

Gilbert Harrison, chairman of Financo Inc. and investment adviser to Cherokee, said, "We believe that the combination of Cherokee and Mossimo would be a phenomenal strategic combination creating substantial value for the shareholders."

In a research note, analyst Todd Slater at Lazard Capital Markets said the bids are similar, at a total consideration of $135 million; there is a "larger cash component from Cherokee, but a more upside from stock appreciation for the faster-growing Iconix."

Slater added that Iconix probably has the upper hand, given that Mossimo would pay Iconix a $5 million break-up fee if the April 3 deal fell through. He added, "Past legal disputes between Cherokee and Mossimo add the dimension of bad blood into the mix."

Although Cherokee manufactures Sideout product for Target under a licensing arrangement, at least one investor said he believes Mossimo and Target (where the Mossimo brand is sold) are not likely to approve the Cherokee proposal.

Designer Mossimo Giannulli will stay with the company if the Iconix deal is completed. One source said it was too soon to say if Mossimo would be able to stay with the company he founded if Cherokee won the deal.

Some financial sources estimate that the Mossimo board has five days to respond to the Cherokee bid.

Separately, Mossimo said a shareholder class-action lawsuit was filed against it in a California state court by the Laborer's Local #231 Pension Fund, alleging that Mossimo and its board breached their fiduciary duties in proceeding with the agreement with Iconix. Mossimo and its directors deny any liability and said they intend to defend the claims.

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