Everlast (NASDAQ:EVST)
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From May 2019 to May 2024
Today, Aquamarine Capital Management sent the following letter to
Everlast's Board of Directors.
The Board of Directors
Everlast Worldwide, Inc.
1350 Broadway, Suite 2300
New York, NY 10018
By hand and by facsimile
Dear Sirs,
We are writing to the Board of Directors of Everlast Worldwide Inc.
(NasdaqNM, EVST) to express our displeasure at the handling of events
which have taken place since June 1, 2007, when the company first agreed
to be acquired by the Hidary Group for $26.50 per share. It appears the
board has not conducted an open and transparent “bid”
process designed to achieve the highest possible valuation for
shareholders. Rather, management and the board have been unusually quick
to sign a series of merger agreements with “break-up”
fees (the latest of which amounts to $5.8mm) which increasingly make it
more difficult and expensive for a higher potential bid to emerge.
Ultimately, the cost of these fees is borne by the shareholders of the
company as they prevent the highest potential bid from emerging.
On Friday, June 1st, Everlast Worldwide Inc.
(NasdaqNM, EVST) announced an agreement to be acquired by The Hidary
Group for $26.50 per share. On June 4th we
issued a press release indicating we believed the offer significantly
undervalued the company. At the time we wrote:
"at the 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."
As disclosed in public 13D filings, we note that subsequent to our June
4th press release, we entered into agreements to roll our shares into
the offer with Hidary Group at the price of $26.50 to maintain our
investment in Everlast after it was private as we considered that far
superior for our investors to selling our investment in Everlast at
$26.50 per share in the merger.
On June 28, Brands Holdings Limited submitted a competing offer of $30
per share. Hidary countered within four business days (as permitted in
their Merger Agreement) with a $30.55 per share offer. Rather than
consider the revised Hidary bid superior, the Board quickly moved to
accept the lower Brands Holdings offer, agreeing to pay Brands
Holdings a “break-up”
fee of $5mm.
Notwithstanding what appears to be a lack of communication on the part
of the Board with the Hidary Group regarding Hidary Group’s
superior offer of $30.55 per share, on June 29th
Hidary Group further increased its offer to $31.25 per share in a
structure enabling all of the shareholders to roll up to 50% of their
investment into the private company. Rather than negotiate directly with
Hidary, Everlast in a matter of hours accepted Brands Holdings increased
bid of $33, increased the “break up”
fee it was willing to pay Brands Holdings to $5.8mm and agreed to a “no
shop” provision. You should know that we put
a high value on the option to roll our shares into the Hidary
transaction.
It appears clear that for one reason or another, Everlast is determined
to get a deal done with Brands Holdings. The Hidary Group represents a
very legitimate bidder and has expressed its willingness to raise its
offer further if the break up fee is eliminated. The company’s
hasty actions and further refusal to negotiate with Hidary Group, or we
presume, with any other potential bidder who may emerge (or has
emerged), may represent a breach of the Board’s
fiduciary responsibility to entertain other potentially superior offers
and achieve the best offer possible for its shareholders.
We encourage the Board of Directors to slow down, step back, and go back
to the negotiating table with Hidary Group to better understand the
value of the roll-over structure to shareholders.
The emergence of ever higher competing bids over the past weeks are a
great indication of the value and potential of the brand. We see no
reason why the company is in such a rush to close inferior deals (from a
shareholder’s standpoint) with Brands
Holdings and we see no reason why the Board has been so quick to agree
to ever-increasing “break-up”
fees which only act as a transfer of capital out of the hands of
shareholders and discourage the company from achieving the highest bid
possible.
Sincerely,
Guy Spier
Aquamarine Capital Management, LLC
152 West 57th Street
25th Floor
New York, NY 10019
212-716-1350
212-716-1353 (fax)