With two weeks to go before its shareholders consider its proposed sale to Signet Jewelers Ltd., Zale Corp. Thursday shot back at a shareholder opposing its acquisition by Signet, saying the $1.4 billion takeover “provides compelling and immediate value” to its stockholders.
TIG Advisors LLC, which owns 9.5 percent of Zale’s outstanding stock, on Monday came out against the $21-a-share cash transaction and called it “grossly unfair” based on Zale’s projected growth trajectory. TIG said it would vote its shares against the deal at a special meeting of Zale shareholders to consider the proposed merger on May 29 and urged fellow shareholders to do the same or abstain from voting.
Zale said the proposed purchase provides a 41 percent premium to Zale’s closing stock price on Feb. 18, the day before the combination of the jewelry giants was announced, and an 85 percent premium to the average closing price over the year prior to the agreement.
The purchase price offers a valuation that is 18.5 times Zale’s earnings before interest, taxes, depreciation and amortization in the 12 months ended Jan. 31, Zale noted.
TIG portfolio manager Drew Figdor said the benefits of the acquisition as agreed would flow too heavily to Signet shareholders and not enough to Zale’s, and that a price of at least $28.60 — $12.50 in cash and 0.158 shares of Signet for each share of Zale — would have been more equitable based on financial projections laid out by Zale management since the agreement with Signet.
But Zale noted that those three-year projections were provided as a best-case scenario — “a stretch plan to challenge management” — and that the $21-a-share payment to shareholders would give them “certainty of value and [eliminate] the risks to Zale stockholders of failing to achieve the company’s three-year business plan.” Zale said it hasn’t received offers from other parties since the announcement of the transaction and noted that its stock price could be at risk if the transaction doesn’t close as scheduled.
In midday trading Thursday, Zale’s shares were down 0.8 percent to $21.72. They closed at $14.91 on Feb. 18.
TIG also asserted that Golden Gate Capital, Zale’s largest shareholder with 23 percent ownership and two seats on Zale’s board, had a “strong incentive” to push for a deal after listing its own shares of the company in October, rather than taking a “longer-term perspective” about the company, which has recently borne some of the fruits of a years-long turnaround effort.
Zale responded only by saying that Golden Gate’s interests are “fully aligned” with those of other Zale stockholders “in seeking maximum value for Zale shares.”
A spokesman for TIG said the investment fund had no comment on Zale’s defense of the deal, which is expected to close before the end of the calendar year.