Aquamarine Capital Believes Buyout of Everlast at $26.50 is under-Priced - Fair Value in Excess of $50 Per Share

  
    
  
  
    
      On Friday, June 1st, Everlast Worldwide Inc. 
      (NasdaqNM, EVST) announced an agreement to be acquired by The Hidary 
      Group for $26.50 per share. This represents a modest premium of 14% to 
      the prior closing price and a total value of $146 million.
    
    
      While we commend management (in particular Seth Horowitz, CEO) for an 
      exceptional job of resurrecting Everlast over the past several years, we 
      believe this offer significantly undervalues both the brand and the 
      company. As current shareholders who have so far accumulated 2.3% of the 
      company, we intend to vote against the takeover proposal.
    
    
      The Everlast brand is over 90-years old and is by far the dominant 
      global brand in the sport of boxing. It has been worn by famous boxing 
      personalities such as Muhammad Ali (Cassius Clay), Mike Tyson and Jack 
      Dempsey. The brand has been worn in blockbuster films by famous award 
      winning actors such as Sylvester Stallone in “Rocky” 
      (1976), Russell Crowe in “Cinderella Man” 
      (2005) and Hillary Swank in “Million Dollar 
      Baby” (2004) as well as having been featured 
      in the HBO television series “the Contender”.
    
    
      With such a remarkable heritage and extensive media exposure, Everlast 
      is perhaps the only company we know of that can successfully compete 
      with global juggernauts such as Nike (NYSE, NKE), Adidas (Deutsche 
      Boerse, ADI,) and Puma (Deutsche Boerse, PUM.)
    
    
      The $26.50 takeover price equates to less than 12x FY 2007 EBITDA 
      guidance. Given management’s recent history of 
      conservative guidance, coupled with the buyer being closely associated 
      with a current Everlast licensee, we believe that recent guidance will 
      likely prove conservative, bringing the multiple closer to 10x if not 
      lower.
    
    
      Other fast-growing athletic and performance oriented consumer brands 
      with lesser brand recognition, are valued at multiples which are 2x-3x 
      greater. Assuming $15mm in EBITDA generation by 2008 (an arguably 
      conservative estimate), a $50 share price for Everlast would equate to 
      18x EBITDA. Furthermore, $50/share represents a 30%-40% discount to the 
      current value of comparables companies like Under Armor (UA, NYSE, 
      $47.68, 31x EV/EBIDA), and would come much closer to representing fair 
      value for current shareholders, in our view.
    
    
      At this morning’s annual meeting, Everlast 
      disclosed a 30-day “go shop” 
      period in which the board will evaluate competing bids for the company. 
      We mention this because this information was not included in this morning’s 
      press release, which could lead current investors to conclude that the 
      $26.50 offer is final. Given the disparity between the offer price and 
      our view of fair value for this company, we would be surprised if 
      superior bids do not arise.