By  on October 20, 2008

In an unsolicited bid with David and Goliath overtones, extreme sports retailer Adrenalina offered to buy Pacific Sunwear of California Inc. on Monday for $4.50 a share in a cash and stock deal valuing the company at about $300 million.

The price represents a premium of 24.3 percent on the West Coast-inspired retailer’s Friday’s closing price of $3.62. Following the offer, sent to the board after PacSun chief executive officer Sally Frame Kasaks declined to respond, shares of PacSun rose 18 cents, or 5 percent, to $3.80. Adrenalina shares were up 25 cents, or 20.8 percent, to $1.45.

Adrenalina ceo Ilia Lekach told WWD, “PacSun has serious identity problems. They have to reposition themselves to become relevant to the customers that they are targeting, and I think that Adrenalina can reenergize and bring that to PacSun.”

He added that he was “concerned” the Anaheim-based Pac Sun’s board would not consent to a discussion of the bid and that he’d attempted to contact Kasaks via e-mail for “over a year.”

With just three stores and $3.8 million in revenue and a net loss of $5.8 million last year, Adrenalina’s chances of taking over PacSun, a company with 937 stores and $1.45 billion in revenue, are like “the minnow swallowing the whale,” FBR Capital Markets retail analyst Adrienne Tennant said.

The Miami-based company had just over $329,000 in cash at the end of the second quarter. “To finance the takeout with equity would require Adrenalina to issue over 230 million shares at $1.25,” putting the odds of the deal happening at “slim to none,” she added.

If the deal were to go through, Adrenalina might have to issue debt, said Tennant, referencing the company’s $4.2 million loss on sales of $2.3 million during the first half of the year.

“Given the current environment in the financial markets and the ongoing credit crisis, we believe it is very unlikely that Adrenalina can arrange financing for this deal,” she said. “However, we believe that this offer may cause investors to comb through the wreckage of the retail space in search of other beaten down names for potential private equity candidates.”

Tennant also judged the $4.50 a share as “far below” what the company would be worth if Kasaks’ current turnaround efforts are successful.

But Lekach didn’t seem bothered. “I’m highly confident that we can finance this deal,” he said, noting the money would come from “private individuals, institutional buyers and strategic partners.”

Some viewed Lekach’s bold gesture as reminiscent of his past as president, chairman and ceo of Parlux Fragrances Inc., a company best known for its Paris Hilton and Guess scents. He tried to take the company private twice during his tenure, once in 2003 and again in 2006, when he rescinded an unsolicited $259.6 million bid. Shares of Parlux initially increased, but he withdrew the offer a month later after the company’s board raised concerns about his ability to find outside financing.

Regardless, Lekach said a deal with PacSun would be “very easy to finance.”

Saddled with its own performance issues, the recent general weakness among apparel retailers and more recently the credit crisis, PacSun’s shares have fallen nearly 78 percent since their 52-week high of $17.11 reached last Oct. 25. While most specialty retailers have struggled, the sting for PacSun has been especially sharp because of its location. With roughly 24 percent of the company’s total store base in California, Florida and the Southwest, comparable-store sales for the region fell 21 percent in September. This pulled down PacSun’s overall comps 5 percent. As a result, the company said third-quarter profit would be at the low end of its previously announced third-quarter profit forecast of breakeven to 5 cents a share.

Pacific Sun’s poor performance “has nothing to do with the economy,” Lekach said. “This has to do with relative concepts. We expect to bring to PacSun a soul that they desperately need. We will bring them the hard-core identity.”

With its emphasis on equipment, apparel and accessories for extreme sports, and its affiliation with the television show of the same name, Adrenalina bills itself as “retail entertainment.” Its stores include the “FlowRider,” which allows customers to surf on a simulated wave surface. The company also has entertainment and media operations and an e-commerce site at

Pacific Sunwear hasn’t publicly acknowledged the bid. A spokesman, Gar Jackson, didn’t respond to a request for comment.

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