New York—Shares of Kenneth Cole Productions (NYSE:KCP) jumped as much as 19% to $15.49 on Friday following the announcement that Kenneth Cole, the company’s founder, chairman and chief creative officer, plans to take the company private.
Cole offered to buy the remaining share in a deal that would value his business at $280 million. Cole, who began the company in 1982, holds 47% of the company’s outstanding shares, giving him about 89% of the voting power.
“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,” Cole wrote in a letter to the company’s board on Friday.
“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,” said Cole, who noted his intends to keep current management in place.
But the fact that shares have surged above the $15 a share offering that Cole made, may show that investors expect additional offers. So far this year, the company’s shares have gone up some 46%.
The board formed a special committee to evaluate Cole’s bid in addition to any others it might receive. The committee consists of all of the board members except Cole and Paul Blum, ceo.
Cole’s bid represents a 26% premium over the 45-day average closing price of the stock as of Feb. 23.
Already, the Shareholders Foundation, Inc., which monitors legal action in such cases, reported today that one stockholder has filed suit in state court challenging Cole’s $15 a share offer.
Shareholder Watchdog: Cole’s Deal “Undervalues” Company
Saying the offer is “unfair” to stockholders and undervalues the company, the stockholder noted “at least one analyst has set the high target price for KCP shares at $17 per share, both above the current offer.
“Based on these and other factors, we are concerned whether Kenneth Cole’s Board of Directors is doing everything possible to maximize shareholder value and negotiate a better price for the shareholders,” said Willie Briscoe, a former Securities and Exchange Commission attorney along with the securities litigation firm of Powers Taylor, LLP, which is investigating potential claims against the company.
In the last two quarters, Kenneth Cole Productions has reported weaker-than-expected sales and saw its margins shrink over the last four quarters as sourcing costs and promotional activity increases. Its shares have fallen over the last five years as its more moderate consumers have felt the economic pinch more than their luxury counterparts
Kenneth Cole Productions, which owns the Kenneth Cole New York, Kenneth Cole Reaction, Unlisted and Le Tigre brands, also closed stores help with costs.
Two years ago, rumors surfaced that the company was in talks with Iconix Brand Group, Inc., which is headed by Cole’s brother Neil Cole, but no deal ever surfaced.
“Kenneth has made it clear that he doesn’t want to work for anybody–he’s a trailblazer, which is going to scare off potential bidders,” Steven Marotta, an analyst at CL King & Associates told Bloomberg News. “He is essentially bidding against himself but the deal is probably going to get done at a higher level.”