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Updated to include added analyst comments, M&A details and updated share prices.
NEW YORK (
TheStreet) - It's not just Kenneth Cole shoppers that may be in a post-holiday bargain hunting mood.
Clothing designer Kenneth D. Cole may be looking to buy his namesake fashion company at an opportunistic price from existing shareholders with a $15 a share bid for
Kenneth Cole Productions(KCP) on Friday.
Citing profitability and competitive challenges, Cole is offering to buy the company at a valuation of $280 million -- or roughly a 26% premium to the company's average stock price in the last 45 days -- but below a post-crisis September 2010 share price high of $16.50.
The move comes at a time when mass-fashion mainstays like Kenneth Cole and
Liz Claiborne(LIZ) struggle with post-crisis profitability and insurgents like
Michael Kors(KORS - Get Report),
DSW(DSW) report strong earnings.
Kenneth Cole is looking to buy KCP for $15 a share.
But Kenneth Cole may be close to an earnings recovery and the timing of the buyout may be an opportunistic play to get shares on the cheap.
"The market simply has given the company little credit for the value of the brand and the merit of recent turnaround initiatives and we think that Cole recognizes the opportunity to take the company private for cheap, re-build/grow the business with CEO, Paul Blum, and that ultimately would give him the chance to cash out at a substantially higher level," writes Jeff Van Sinderen an analyst with B. Riley & Co. in a note reacting to Friday's bid.
"The proposed transaction values the equity at ~$280M, which is still pretty low, given the licensing stream, brand equity, etc. We would not be surprised to see pressure applied for Cole to raise his bid," adds Van Sinderen. He rates the company's shares a "buy" with a price target of $17.
"We think Mr. Cole will likely offer an attractive premium to the $15 starting point, but is notably still mercurial enough to leave the public entity intact should the public market price trade at above his unknown "drop-dead" level," wrote CL King & Associates analyst Steven Marotta in a Friday note. At $15 a share, investors would bear an 18 months of cost cutting without seeing any of the expected benefit, according to Marotta. He notes when the initiative started,
Iconix Brand Group(ICON) was reportedly in talks to offer $27 a share for Kenneth Cole.
In his $15 a share offer, Kenneth Cole cited competitive and economic challenges that make it better for the company to operate as a private concern and offered a significant premium for the company's shares, which have rallied strongly in 2012.
"Recent market challenges have created a sharply competitive landscape, and I believe it is now more important than ever to embrace a more entrepreneurial perspective," said Cole in a Friday statement. He is currently the company's Chairman and Chief Creative Officer. "I am convinced that private ownership is in the best interests of the business and the organization and that this proposal is in the best interests of the shareholders."
Cole, who founded the New York-based clothing, footwear and fashion apparel designer in 1982 and took the company public in a 1994 IPO holds a 47% of Kenneth Cole's stock and 89% of its voting rights, making him a key to any strategic moves. But problems may arise if shareholders consider the management-led buyout to be unfairly priced or not fairly shopped to other interested acquirers.
Investor expectations signal an increased bid or a higher takeout of the company. Kenneth Cole shares rallied nearly 19% in Friday afternoon trading to $15.52, over 4% above the offer price. The company's shares have surged over 50% year-to-date on improving earnings prospects and the takeover bid.