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PacSun Answers Adrenalina Proxy Threat

PacSun questioned the ability of its smaller rival Adrenalina to make an acquisition and criticized the proxy threat.

The vicious volleying between Pacific Sunwear of California Inc. and Adrenalina resumed Tuesday, and even intensified, as PacSun backed its chief executive and questioned the wisdom of its suitor’s desire for a proxy fight and even its ability to make an acquisition.

This story first appeared in the February 18, 2009 issue of WWD.  Subscribe Today.

PacSun said a merger between the two retailers was not in its shareholders’ best interest, and that Adrenalina’s threat of a proxy fight was “unfortunate.”

The letter, signed by Peter Starrett, PacSun’s lead director, came five days after Adrenalina ceo Ilia Lekach disclosed his intention to nominate four directors to the firm’s board. Lekach had sharply criticized PacSun’s leadership, calling for the resignation of ceo Sally Frame Kasaks, and saying her stewardship not only “threatened to destroy shareholder value,” but imperiled the very existence of the retailer.

Adrenalina, which operates three stores in Florida and owns about 3.2 percent of PacSun, has been in pursuit of its far larger Anaheim, Calif.-based rival since last fall. Adrenalina’s initial bid to acquire the 932-store operation for about $300 million was rejected in October and followed by a similarly rebuffed $329 million offer.

Starrett, who detailed PacSun’s recent turnaround efforts, said Adrenalina’s “platform” for enhancing shareholder value “centers on a merger” of the two retailers.

Starrett pointed to Adrenalina’s “substantial operating losses,” which totaled $5.8 million in 2007, and $6.2 million for the first nine months of this year. The retailer’s independent auditors, he noted, have “raised questions” about its ability to continue as a “going concern.”

The chairman continued, “We also strongly dispute your public contentions that your unspecified ‘plan’ has the support of either our largest shareholders or ‘pillars’ of the surf or skate apparel industry.”

He noted that shareholders wouldn’t be served by a proxy fight “in furtherance of your stated desire…to combine PacSun and Adrenalina and install yourself as ceo. But make no mistake — if that is the course you wish to pursue, we will do all that is necessary to protect shareholders.”