By  on November 14, 2007

NEW YORK — The bid for Kellwood Co.'s ownership is heating up after Sun Capital Securities Group LLC reissued a $543 million bid Monday to buy the $1.6 billion vendor — and Kellwood flatly rejected it again on Tuesday.

The back-and-forth may mark the end of friendly rhetoric and the beginnings of a hostile takeover.

"We are very disappointed that you rejected this proposal on Oct. 17 and have repeatedly resisted our efforts to open a constructive dialogue regarding our interest in acquiring Kellwood," stated the letter issued Monday by Jason G. Bernzweig, vice president of Sun Capital, to the Kellwood board. "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 9.9 percent ownership position in Kellwood, including making a $21 per share offer directly to Kellwood's other shareholders."

Kellwood immediately rejected the offer. "Yesterday's letter from Sun Capital simply reiterates the terms of its Sept. 18, 2007, proposal," Kellwood said in a statement issued immediately following the offer. "As previously announced, after a careful review with the assistance of the company's independent financial advisers, the board of directors concluded Sun Capital's unsolicited proposal significantly undervalued 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."

Sun Capital, which is the second-largest shareholder in the St. Louis-based vendor, first offered $21 a share on Sept. 18. A month later, Kellwood rejected the bid, then followed up last week with a revised strategic plan that promised to boost organic sales growth to 4 to 5 percent, raise operating margins to 9 percent and grow earnings per share at least 25 percent.

"We have carefully reviewed the strategic plan Kellwood announced on Nov. 7 and note that it resembles the plan announced in mid-2005," according to Sun Capital's letter. "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 per share in cash now represents superior value for shareholders, especially on a risk-adjusted basis, compared to what they expect to realize through Kellwood's pursuit of its long-term plan."The letter points out that the $21 a share offer represents:

- A 38 percent premium on the closing price Sept. 18, the last trading day before Sun Capital disclosed its offer.

- A 40 percent premium on Kellwood's closing price Nov. 7, the day after Kellwood unveiled its revised strategic plan.

- A 32 percent premium to its closing price Nov. 9, the day before Sun Capital reiterated its offer.

"Kellwood's earnings guidance is extremely aggressive by any objective measure," Sun Capital said. "This projected growth significantly exceeds each of the company's peers and is far greater than anything Kellwood has ever achieved in the past. This disconnect is of great concern given Kellwood's established track record of performing below expectations....Having endured the worst stock price performance in the peer group over the past five years, shareholders are entitled to tangible evidence that Kellwood's performance is validating these aggressive projections."

Sun Capital focuses on investing in companies that it believes have been undermanaged. While it likes to keep management, the equity fund leverages its operational capabilities to streamline in areas including sourcing and supply chain management — dramatic cuts that can be easier to make outside the scrutiny of Wall Street as a public company.

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