A week before its $762 million tender offer expires, Sun Capital Securities Group LLC told Kellwood Co. shareholders Wednesday that “tendering is the only way to guarantee you receive $21 per share in cash.”

“You must tender your Kellwood shares into Sun Capital’s offer to ensure you will receive $21 per share in cash,” the private equity firm said in a letter.

This story first appeared in the February 7, 2008 issue of WWD. Subscribe Today.

Although most shareholders won’t commit to tender their shares until right at the buzzer at midnight Tuesday, Sun Capital’s letter is common practice, experts said.

Sun Capital will likely announce on Wednesday how many shareholders tendered their shares. If the private equity firm gets the necessary majority, which Kellwood has required to remove impediments to the hostile takeover, it will be able to “close the offer and pay you for your tendered shares within a matter of days,” according to the letter. If not, Sun Capital will decide whether to extend the tender offer or abandon the deal. Sun Capital is the second-largest shareholder of St. Louis-based Kellwood.

The private equity firm on Jan. 14 made the $762 million all-cash tender offer for Kellwood, which is projected to do $1.6 billion in sales in the fiscal year ended Feb. 2, and held $1.5 million in assets in 2006, according to the annual report.

Sources said Kellwood hopes that a higher bid is made or that the majority of shareholders will decline Sun Capital’s offer. The Kellwood board said on Jan. 28 that it was halting efforts to block Sun Capital’s takeover, and Wall Street boosted the stock price 19 percent to about $20.

In Wednesday’s letter, Sun Capital told shareholders that the current stock price was a result of the offer, not company performance, and that if they didn’t tender their stock, they risked losing the value the stock had gained since Sun Capital announced interest in the company last September.

“The offer represents a premium of 38 percent to Kellwood’s stock price when we first proposed the acquisition on Sept. 18, 2007, and is even more attractive today,” the letter said. “Since then, Kellwood’s peer group and the S&P Consumer Discretionary Index have experienced significant declines due to weakening fundamentals in the consumer sector. Accordingly, we believe Kellwood’s stock price would decline significantly, likely to a level well below its trading price on Sept. 18, 2007, in the absence of a sale of the company.”

Sun Capital invests in companies it considers undermanaged. After acquiring companies, Sun leverages its operational capabilities to streamline areas including sourcing and supply chain management — dramatic cuts that are easier to make as a private company without Wall Street scrutiny — so that a vendor like Kellwood could be made more profitable even if sales stayed flat.

Kellwood and Sun Capital declined comment.

load comments
blog comments powered by Disqus