Warnaco's Agreement to Buy Authentic Sends Stock Down
March 28, 2011
NEW YORK -- Warnaco Group Inc.'s shares dropped 9.6% on news that it reached an agreement to buy back Authentic Fitness Corp. in a deal now valued at $404 million. While the overall stock market fell sharply Monday, one of the concerns on Wall Street is that Authentic's biggest shareholders, the Pentland Group PLC, opposes the deal. Pentland holds 23% of Authentic's stock. And Pentland's chairman, R. Stephine Rudolph, resigned from the board of Authentic Fitness Monday. Investors representing a majority of Authentic shares must approve the sale. Authentic was spun off from Warnaco in 1990. ``We believe the current offer does not recognize the exciting future prospects for AFC and does not represent sufficient value for AFC's shareholders,'' said Mr. Rudolph in a statement. On Sunday, Warnaco agreed to sweeten the initial bid to acquire Los Angeles-based Authentic to 0.82 of a share of Warnaco for each share of Authentic from 0.725. An independent committee of Authentic directors represented by Salomon Brothers found the offer to be fair to shareholders. Monday, Warnaco gave a bullish presentation to analysts. Lindsey J. Daniel, chairman and chief executive of both companies, told analysts that the acquisition would be slightly accretive to Warnaco in 2012, and that cost savings are estimated to be $20 million annually. Said Tomas Emerson, analyst at Winchester Lovelady, ``I have a hard time finding what's not to like'' about the deal. Some people suspect that Pentland is opposed to the sale because it would no longer be able to account for its Authentic investment favorably. But Fransisca Louque, Pentland's finance director, maintains that the company would change the accounting treatment going forward anyway because of Mr. Rudolph's decision to resign from the Authentic board. Shares of Warnaco fell to $22, down $2.125, in Big Board trading; shares of Authentic were unchanged at $17.25 Monday. The transaction is valued at $18 a share. Authentic shareholders are receiving a higher exchange ratio, but Warnaco's shares have plunged from over $30 a share since the original offer was announced.
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