Warnaco Rejects Takeover Bid, Sweetens Own Offer

Warnaco Inc. on Tuesday rejected a merger proposal from a California investment group and responded to the investors’ latest overture by sweetening the recapitalization plan that it intends to submit to shareholders in two weeks.

Warnaco’s board announced Tuesday that it was raising the cash portion of its offer from $7 per share to $9 per share and was increasing the value of notes that would be issued to stockholders from $29 per share to $30 per share.

The revised package, at Warnaco’s valuation, is worth $44 per share, or about $448.8 million based on the company’s 10.2 million shares outstanding. It tops by $1.50 a share the all-cash merger offer made Monday by W Acquisition Corp. of Encino.

In Los Angeles, Andrew G. Galef, chairman of W Acquisition, said Warnaco’s offer amounts to a “callous disregard for shareholders.”

“Their decision not to meet for a discussion of our merger proposal can only be characterized as an unconscionable disregard for the fiduciary duty the board has to the shareholders,” Galef said.

He said Warnaco was offering “a lot of dubious paper it has created instead of the cash we are offering.”

Despite Warnaco’s determination to remain independent, cracks began to show in the company’s board Tuesday as Robert W. Anthony, a director since 1971, resigned, apparently because he felt the recapitalization plan was becoming too debt-heavy.

Anthony, a professor of management control at Harvard Business School, declined in an interview to say why he resigned. But Warnaco’s chief administrative officer, general counsel and director, Lloyd P. Stauder, said the board’s understanding of Anthony’s motivation was that “in his judgment the proposal was more highly leveraged than he thought prudent.”

Besides the cash and notes, the Warnaco proposal contains stock in the recapitalized company, which Warnaco said would be worth about $5 per share. Shareholders are to vote on the plan April 25. The company has said that if it can sell the notes to outside investors, the cash portion of the offer could be raised to $24 per share.