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At first blush, Sun Capital Securities Group LLC's unsolicited $543 million bid for Kellwood Co. may seem low. But, considering the $1.96 billion vendor's troubled earnings in the last few years, analysts think the $21 a share offer may not be such a bad deal.
Kellwood released a statement close to midnight Tuesday saying it had received "an unsolicited letter" from Sun Capital. On Wednesday, the apparel group's stock jumped 26 percent to close at $19.14. Shares of Kellwood have been trading around $15, near their 52-week low.
Some observers balked at the idea that brands such as Vince, Gerber, Hanna Anderssen, Baby Phat, Smart Shirts and American Recreation couldn't demand more than $21 a share.
"Based on historical trading ranges and the fact that the bulk of the shareholders got in at higher prices than the bid price, this looks like a real low-ball bid," said consultant Paul Charron, former chairman and chief executive of Kellwood rival Liz Claiborne Inc. "I can't imagine the board would recommend shareholder approval of a bid in this range, even with the challenges that face Kellwood and all the other companies in the sector."
Charron called Sun's offer an opportunistic bid, but analysts pointed out that shareholders who bought when the price was around $30 a share probably no longer hold the stock. Those analysts questioned how the rest of Kellwood's portfolio — filled with struggling moderate brands such as Sag Harbor, Koret and Briggs New York, as well as nonowned licensed brands such as the Calvin Klein white label — could command a higher price.
Kellwood has spent the last year making small acquisitions in higher margin markets, and these purchases have turned the tables to make the group a target for acquisition itself, according to Brad Stephens, an analyst for Morgan Keegan & Co. Inc. Last year, Kellwood stocked up on small contemporary lines, buying Vince in September and Hollywould in December. Last June, it bought activewear company Royal Robbins Inc. for about $40 million, and children's line Hanna Andersson Corp. for about $175 million. But, while these are brands with growth potential, they don't have much in common with each other and the integration could be tough, Stephens added.