Group Begins Warnaco Proxy Fight : W Acquisition Opposes Recapitalization Plan, Sweetens Offer
An Encino-based investment group on Sunday raised its offer to buy Warnaco Inc. to $44 a share, or about $444 million, and said it will launch a proxy fight to defeat a recapitalization plan proposed by the Bridgeport, Conn.-based clothing maker.
In a letter to be sent today to Warnaco directors, Andrew G. Galef, chairman of W Acquisition Corp., also indicated that the group might raise its offer further if Warnaco’s directors, who for the past month have spurned the group’s bids, agree to sell. Galef said W Acquisition is prepared to meet with Warnaco’s directors “to discuss a merger agreement which could be of greater value to your shareholders.”
Warnaco spokeswoman Verne King said the company had no comment on the offer or the proxy fight.
Galef also said W Acquisition will file proxy materials this morning with the Securities and Exchange Commission and will begin soliciting proxies later this week asking shareholders to reject Warnaco’s recapitalization plan when they vote on it at a special meeting April 25.
100,000 Shares Already Tendered
The new tender offer and proxy fight escalate a battle that began last month when W Acquisition made its initial bid of $36 a share, or about $364 million, as Warnaco’s management was arranging to take the company private in a deal valued at about $33.50 a share.
W Acquisition’s most recent offer was $40 a share, although it had said it would raise its bid to at least $42.50 a share if Warnaco agreed to be purchased. Galef said that about 100,000 shares were tendered under that offer to the group.
By contrast, Warnaco’s latest recapitalization plan--which some analysts valued at about $44 a share--would convert each share into $9 cash, a package of senior subordinated and junior subordinated notes with a face value of $30 and one share of common stock valued at $5. The cash portion of the offer could be increased to $24 a share if its investment banker, Goldman, Sachs & Co., is successful in placing the senior notes with investors.
Warnaco’s stock closed Friday at $44 a share, up 50 cents, in New York Stock Exchange composite trading.
There are about 10.2 million shares of Warnaco stock now outstanding, of which 113,000 are already owned by W Acquisition. The number of shares outstanding could increase to more than 10.5 million if all of the options held by Warnaco’s management are exercised.
To get its plan approved, Warnaco needs the support of those owning two-thirds of the shares outstanding. Galef said that W Acquisition probably only needs the support of those holding about 25% of the stock to defeat the plan, because many shareholders typically do not vote in proxy battles.
On Friday, the principal investment officer of the California Public Employees Retirement System, Warnaco’s largest institutional shareholder, said in an interview that he probably would vote against Warnaco’s current recapitalization plan.
“It looks as if the offer is not as good as it could be. The stock price already reflects that,” said Jose Arau, the investment officer. The retirement system owns about 500,000 Warnaco shares, or roughly 5%.
All-Cash Offer
Galef said that he values Warnaco’s recapitalization plan at $39 to $40 a share and that W Acquisition’s own analysts estimate that it is worth $38.50 to $41.50 a share. He said he believes that the group’s offer is superior because it offers shareholders cash. He added that, based on his projections of the company’s future performance, the securities that Warnaco is offering are risky.
Galef said, however, that he is uncomfortable that Warnaco’s stock has been rising so quickly in price. He said it is a sign that the market is “behaving irrationally” and said the group might scuttle its offer if the stock price continues rising.
