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.

Kellwood declined comment Wednesday beyond a briefly worded release that said: "The company's board of directors will carefully evaluate the Sun Capital proposal, and other alternatives available to the company, taking into account the potential benefits that may be realized through the company's previously announced long-term strategic plan."

Executives at Sun Capital could not be reached for comment. According to the company Web site, Sun Capital is a private investment firm focused on "leveraged buyouts, equity, debt and other investments in market-leading companies that can benefit from its in-house operating professionals and experience."

Sun Capital has invested in more than 160 companies worldwide since the firm began operations in 1995.

The firm has $10 billion of equity capital under management, and can invest more than $2 billion of capital in any one transaction. The firm is unique in that it often bridges the entire purchase price at closing, raising permanent debt financing afterward. Because it can close deals without external financing, transactions often close quickly, within a month, versus the usual three month-to-six month waiting period. Target companies typically have up to $5 billion or more in revenues, with most having sales between $50 million and $500 million.

In a WWD interview last year, Gary Talarico, managing director at Sun Capital, observed, "We are investing typically in underperforming companies or distressed firms....We are concerned with the causes of the underperformance of the retailer in question and whether they can be turned around to perform more in line with their peer group."

While Sun Capital is probably more known for investments outside of apparel — Boston Market Corp., Chrysler Holdings and Friendly Ice Cream Corp., all last month — it is certainly not a stranger to the retail and apparel sector. Among its holdings are Mervyns (September 2004); French and U.K. branded jeans company Lee Cooper (May 2005); Shopko and Pamida (both in December 2005); cosmetics firm Stila (April 2006); GMAC Financial Services, which has a substantial lending portfolio base in retail and apparel (November), and The Limited Stores (August).

As for the nonbinding bid for Kellwood, Emanuel Weintraub of Emanuel Weintraub Associates observed: "This is only the beginning of a superconsolidation in the industry. Sun Capital has the money and the vision. If you have the vision and the funding capability, you do the deal."

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