Perry Ellis Men's Fall 2018

Perry Ellis International Inc.’s special committee has work to do.

In agreeing to reopen discussions with Randa Accessories — the firm upped its nonbinding offer price to $28.90 a share, or a transactional value of $459 million — it now needs to let Randa do additional due diligence and try to finalize terms of an agreement with the accessories firm. Randa has been in on-and-off preliminary discussions with Perry Ellis since April 5, according to information on file with the Securities and Exchange Commission.

On the table is a signed agreement with former Perry Ellis chairman and founder George Feldenkreis at $27.50 a share. The Feldenkreis agreement has financing in place and no contingencies. One stumbling block for Randa has been access to inbound licensers. Randa has said it wanted the go-ahead to talk with them to obtain approval for the transfer of the license due to an opt-out option these licensers have in the event of a change in ownership of the apparel firm. While the Feldenkreis agreement doesn’t have this as a contingency, there’s of course always the chance that the licensers could change their minds once the deal closes. The Feldenkreis agreement is under SEC review.

Feldenkreis said of the development with Randa, “This is a travesty. Randa has submitted a noncommitted offer. They have given no guarantees in any way that the transaction proposed will ever close.”

Asked if he would consider upping his offer above that of Randa’s, Feldenkreis declined comment.

So what’s the special committee to do? While a higher offer is always better for shareholders, is that the only concern? Richard Kestenbaum, partner at boutique investment bank Triangle Capital LLC, told WWD last month that price is one consideration, and that the ability to close is another key criteria.

Gilbert W. Harrison, chairman of the Harrison Group and chairman emeritus of investment banking firm Financo, said Friday, “There is no question that the board has a fiduciary duty to look at the best offer. However, price itself is not considered the best offer. There is certainty of close as well, and one also needs to take into account what happens to the employees and the business itself. While there is the obligation to shareholders, the needs of employees is something that cannot be overlooked.”

Harrison added that another question the special committee will have to determine is how much time should it give Randa to do its due diligence, and whether the financing is in place to close on the deal.

Financial sources who are not connected to either Perry Ellis or Randa, but who have done transactions involving licensing partners, said there is typically a window of just a few days for a company to reach out to licensers. The question then becomes how long will it take for the licensers to respond.

In the case of Perry Ellis, one inbound licenser that would be on Randa’s reach-out list is Nike Inc., which is said to account for business with Perry Ellis valued at more than $100 million. Others on that list include Callaway Golf and PGA Tour, both sizable businesses in the inbound licensing front.

Regulatory filings indicated that Randa on June 20 made a nonbinding offer for Perry Ellis at $27.75 a share, but didn’t have the requisite financial commitments. By July 1, that nonbinding offer was upped to $28 a share, but it also required as a precondition to a definitive agreement that it meet with Perry Ellis’ inbound licensers. Randa also secured financing to do a deal at $28 a share.

Randa did not respond to repeated requests for comment about its increased offer on Friday, but it can only be presumed — although not confirmed — that financing is in place for its bid of $28.90 a share.

Several times in the last four weeks, the special committee had rejected Randa’s outreach and even went so far as to detail the insufficiencies of its $28 offer. That changed on Friday when the committee finally decided, with its advisers, that $28.90 was a compelling offer price.

The committee said on Friday it would commence discussions with Randa and grant it due diligence access. It also told Perry Ellis shareholders that they need not take any action at this time, noting there was “no assurance” the discussions would lead to a transaction with Randa.

Shares of Perry Ellis closed up 4.7 percent to $29.10 on Friday, above the Randa offer price of $28.90 — indicating that the market, at least, suspects Feldenkreis may have to increase his bid if he wants to snare the group.

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