Sun Capital wants Kellwood to stop bond tender offer

By Lisa Kerner

Charlotte, N.C., Jan. 10 - Kellwood Co. shareholder Sun Capital Securities Group, LLC urged the company to "immediately terminate its ill-advised and value destructive tender offer for the 7.875% senior notes due July 2009."

The company announced the cash tender offer for up to $60 million of debt on Jan. 9, according to an 8-K filing with the Securities and Exchange Commission.

Sun Capital, with a 9.9% ownership interest in Kellwood, said the bond tender would be destructive to equity value and would transfer value from shareholders to bondholders.

Kellwood's stock price fell 8% following the announcement of the bond tender, Sun Capital noted in a Jan. 10 letter to the company's board of directors.

Sun Capital cited the "compelling attributes" of the notes, including the absence of maintenance covenants, no restricted payments covenant, and no change-of-control provision.

Instead, Sun Capital recommends that Kellwood leave the notes outstanding and distribute the cash proceeds to shareholders as a special dividend or through a share repurchase. Then Kellwood should refinance the notes in 18 months upon maturity at par, the letter stated.

"Alternatively, if the board understandably has concerns about management's business plan, the right approach would be to negotiate with Sun Capital or run a sale process where potential buyers would have the ability to assume the notes," Sun Capital said.

In November 2007, Sun Capital reaffirmed its proposal to acquire 100% of Kellwood's capital stock for $21 cash per share. Kellwood, however, rejected the offer.

As previously reported, Sun Capital said it prefers to acquire Kellwood in a "friendly negotiated transaction" but is prepared to take necessary steps to protect the value of its 9.9% ownership position in the company.

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 2007 repurchase authorization. The company announced in November 2007 that it used the proceeds of $162 million from the sale of Smart Shirts to repurchase shares and reduce debt.

Kellwood's board "believes that buying back stock and maintaining an appropriate capital structure delivers significant value to our shareholders," the SEC filing stated.

Sun Capital is a New York private investment firm.

Kellwood is a St. Louis-based marketer of apparel and consumer soft goods.

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