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Bidding for Kellwood: Offer by Sun Capital Sends Shares Soaring

At first blush, Sun Capital Securities Group LLC's unsolicited $543 million bid for Kellwood Co. may seem low.

"Sun Capital wants to have a stake in how Hanna Andersson and Vince are run," Stephens said. "I'm not saying Vince is the next Juicy Couture or Hanna Andersson is the next Gymboree, but they see an inefficient structure with some good brands that have been acquired in the last year, and an opportunity to grow them."

Stephens said there are two questions for a potential buyer to consider in evaluating Kellwood. "Do you think that these brands are at a floor or close to a floor in the women's area? And are you comfortable as an investor running your manufacturing in Asia and making it run more efficiently?" he asked.

"The attraction to the portfolio is that you think it's been run inefficiently, and you can improve it. If you can fix either one or both of those two, then this is a fantastic opportunity for Sun Capital," Stephens continued. "But I'm not convinced we are at a floor with their core brands, and I don't know what has happened in their facilities to make them that unprofitable. Are their problems purely self-inflicted?"

After factoring out the heavy restructuring costs the company has undertaken in the last few years, analysts equate Sun Capital's bid to the going industry rate, based on Kellwood's earnings.

For fiscal year 2006, earnings swung into the black to $31.4 million, or $1.21 a diluted share, from a loss of $38.4 million, or $1.42, in 2005. That was a dramatic drop, due largely to restructuring costs, from earnings of $70.1 million, or $2.50 a diluted share, in 2004, and $71.1 million, or $2.62, in 2003.

For the last two years, sales have been around $1.96 billion, down from $2.56 billion in 2004 and $2.35 billion in 2003.

After posting a $66.3 million second-quarter loss from continuing operations earlier this month, the vendor reorganized its executive suite and streamlined the women's sportswear business by dividing it into Lifestyle Alliance for moderate brands, including Sag Harbor, Koret and Briggs New York; Designer Alliance for most of Kellwood's better-and-above price point brands, including Calvin Klein women's better sportswear, ck Calvin Klein women's bridge sportswear, O Oscar, David Meister and Hollywould, and Modern Alliance for junior and contemporary lines, including XOXO, My Michelle and Vince.

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