Tuesday, February 28, 2012
The experience with the J Crew going private last year was almost enough to turned me off altogether. It was, to put it mildly, not well done. Last week, Kenneth Cole announced that he intends to take his eponymous company private. In his letter to the board of Kenneth Cole Productions, Mr. Cole gave some suggestions to the board about how to approach thinking about his offer. And, wouldn't you guess, it's almost textbook:
I expect that you will establish a special committee of independent directors to consider this proposal on behalf of the Company’s public stockholders and to make a recommendation to the full Board of Directors. I also expect that the special committee will retain its own independent legal and financial advisors to assist in its review of the proposed transaction. I will not move forward with the transaction unless it is approved by the special committee. Given my extensive history and knowledge of the Company, I am prepared to negotiate a merger agreement with the special committee and its advisors and complete the transaction in an expedited manner. The merger agreement will provide that the transaction will be subject to a non-waivable condition requiring the approval of a majority of the shares of the Company that are not directly or indirectly owned by me.
Well, alright then. That's a nice start to a deal - touching all the right bases to set up a clean transaction. But, what's motivating this tranasction right now? I mean, Mr. Cole controls 89% of the voting shares of KCP. He can basically do what he wishes with the business without too much real interference from minority shareholders. Why take the company private now just as the equity markets are recovering? In the letter to the board, he lays out his stated reasons for the deal:
The proposed transaction will ensure the Company has the flexibility and structure to successfully navigate our market environment in the years to come. 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 where we are all incentivized to grow and develop our Company’s products, brand and business with a longer term perspective. I believe it is increasingly difficult to develop this type of culture in a public company context, where the public markets are increasingly focused on short-term results. 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.
... because I can. I guess that explains the $15 lowball opening offer...