Sun Capital begins unsolicited offer for Kellwood; company advises shareholders to take no action

By Lisa Kerner

Charlotte, N.C., Jan. 15 - Sun Capital Securities Group, LLC affiliate Cardinal Integrated, LLC began its unsolicited $21.00-per-share tender offer for all of the outstanding shares of Kellwood Co.

The tender offer is scheduled to expire at midnight ET on Feb. 12, unless extended.

Although the offer values Kellwood at about $762 million, including debt, the company advised its shareholders to defer taking any action.

Kellwood's board of directors will review the proposal and make a recommendation in "due course," according to a Kellwood news release.

The $21.00-per-share offer price is the same price as Sun Capital's unsolicited proposals sent to Kellwood in September and November.

Sun Capital noted that the per-share price is a 27% premium to Kellwood's closing stock price on Jan. 14. However, Sun Capital is prepared to reduce the offer price to $19.50 if Kellwood does not terminate its $60 million tender offer for its 7 7/8% senior notes due in July 2009 as Sun Capital asked on Jan. 10.

According to Sun Capital, the price reduction reflects the decrease in Kellwood's equity value resulting from the bond tender and other "ill-advised initiatives."

As previously reported, Sun Capital suggested that Kellwood leave the notes outstanding and distribute the cash proceeds to shareholders as a special dividend or through a share repurchase.

If an agreement with Kellwood is not reached soon, Sun Capital plans to nominate its own slate of directors for election to Kellwood's board at the company's 2008 annual meeting. The investor has also demanded access to certain books and records of the company in order to investigate the impact of the bond tender on shareholder value.

"We are disappointed that Kellwood's board is unwilling to enter into a constructive dialogue with us regarding what we believe is a very compelling transaction for Kellwood's stockholders," Sun Capital vice president Jason Bernzweig said in a news release.

"This refusal to discuss a potential transaction has forced us to take our offer directly to Kellwood's stockholders - enabling them to choose for themselves between the value certainty of our offer and trusting management to successfully execute Kellwood's highly speculative strategic plan," Bernzweig added.

On Jan. 3, Kellwood entered into an $80 million accelerated share repurchase agreement, in addition to the 1.1 million shares repurchased for about $19.8 million under a September repurchase authorization. The company announced in 2007 that it used the proceeds of $162 million from the sale of Smart Shirts to repurchase shares and reduce debt.

Sun Capital has a 9.9% ownership interest in the St. Louis-based apparel and consumer soft goods marketer.

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