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Kellwood Makes Tender Offer For $60 Million of 2009 Notes

Using the cash proceeds from the sale of Smart Shirts, Kellwood Co. made a tender offer Wednesday to buy back up to $60 million in bonds, following an $80...

Using the cash proceeds from the sale of Smart Shirts, Kellwood Co. made a tender offer Wednesday to buy back up to $60 million in bonds, following an $80 million stock repurchase last week.

The day after closing the Smart Shirts deal, which provided the vendor with $162 million in cash, Kellwood told bond holders it would purchase its 7.875 percent notes due 2009 for $1,005 for every $1,000 in principal for bonds until Feb. 6 — plus $30 extra for bonds sold back by Jan. 23.

When the $1.6 billion Kellwood revealed the sale of Smart Shirts, it said it would use proceeds to repurchase shares and reduce debt. While sources call the company's Jan. 3 announcement — to repurchase over the next nine months what amounts to about 18 percent of the company's total outstanding stock at the current share price — an offensive move against a possible hostile takeover offer, they called the latest tender offer more of a defensive one: It helps empty the cash coffer to protect Kellwood against attacks that it's letting cash sit around unused.

But sources added the latest move sends a message to the market that Kellwood has no better ideas of what to do with its money than pay down 7.875 percent notes due in a year, which could make shareholders receptive to a hostile bid sources said private equity firm Sun Capital Securities Group could potentially issue by the end of this quarter.

Last fall, Sun Capital issued, then repeated, an unsolicited $21-a-share bid for the St. Louis-based apparel firm, which Kellwood turned down both times, saying it undervalued the company. Sun Capital, which is Kellwood's second-largest shareholder with a 9.9 percent stake, shows no signs of giving up on its efforts to take over the vendor, whose stock has dropped in the last three years from about $40 to about $16.

"Kellwood's tactic [to repurchase stock] does nothing to redeem value for Kellwood's long-term shareholders — it only pops the stock price in the short-run," said Michael Garland, a director at CtW Investment Group, which represents an estimated six million union members who own about 198,000 shares of Kellwood common stock, or less than 1 percent, and has urged Kellwood's board to name a special committee of independent directors to explore strategic alternatives, including a sale. "These moves are clearly just a weak effort to stave off shareholder pressure for a transaction."

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