ShopKo Stores ( SKO) received an unsolicited buyout proposal from a group of investors, including hedge fund manager Elliott Management, offering to buy the Green Bay, Wis., retailer for $26.50 a share in cash. The offer is $1 above the $25.50-a-share deal ShopKo agreed to last week with Badger Retail Holding, an affiliate of Minneapolis-based private equity firm Goldner Hawn Johnson & Morrison. Elliott, which owns 6.6% of ShopKo's shares outstanding, has been critical of the company's attempts to strike a deal with Badger on the grounds that the initial takeover offer of $24 a share was too low. Another hedge fund that publicly criticized the ShopKo board was John A. Levin & Co. But in its announcement last week, ShopKo said Levin agreed to support the $25.50-a-share deal with Badger Retail, meaning Elliott was losing a strong partner in the bid to get a higher offer. Shares of ShopKo, a seller of general merchandise and pharmacy goods, closed Monday at $26.28, up 76 cents, or 3%. The stock has a 52-week range of $15.88 to $26.70. The other bidders in the new consortium along with Elliott are buyout shop Sun Capital Partners Group IV, Developers Diversified Realty ( DDR), an Ohio-based real estate investment trust, and Lubert-Adler Partners, a real estate investment firm. ShopKo issued a press release acknowledging that it received the $26.50 proposal, but the company said a special committee of its board continues to recommend the $25.50-a-share transaction with Badger. A 13-D filed Monday with the Securities and Exchange Commission contains a letter sent last week by Elliott Management to ShopKo's chairman, John Turner. In the letter, Elliott said that in addition to providing a premium to the agreed-upon bid, its group has a combined $15 billion in capital under management, which is enough to acquire ShopKo without external financing.
Elliott asked ShopKo's management to give its group extra time to conduct due diligence and to postpone the shareholder vote scheduled for Oct. 17. However, ShopKo said the vote will be held as scheduled. At the same time, the special committee of ShopKo's board said it "has entered into a confidentiality agreement" with the Elliott group, and it "expects to provide information to and conduct negotiations with that group."