Kellwood starts accelerated buyback, S&P puts company on credit watch
Standard & Poor's Ratings Services said the ratings on Kellwood (NYSE: KWD) will remain on CreditWatch negative after the company announced plans to repurchase $80 million of shares of its outstanding common stock through an accelerated buyback.
The repurchase agreement with Bank of America N.A., which is expected to take nine months, represents about 18 percent of the company's outstanding shares, Kellwood reported. Bank of America is expected to buy some of Kellwood's stock in connection with the buyback, the company said.
Kellwood added that it will use proceeds from its sale of Smart Shirts to fund the repurchase.
S&P initially placed Kellwood's ratings on CreditWatch in September following an unsolicited takeover bid from Sun Capital Securities Group LLC. Kellwood's ratings were subsequently lowered in October to reflect the company's weak business trends and the tough retail environment, S&P said.
Although Kellwood rejected Sun Capital's bid, S&P said it continues to monitor the company for any revised offers or counteroffers.
"In the event that there are no further changes to current financial policy and that operating performance does not weaken further, we would likely affirm the ratings at the current levels," S&P credit analyst Susan Ding wrote in a note to investors.
Additionally, The New York Post recently reported that Sun Capital Partners is poised to make a hostile tender offer for Kellwood and is considering a tender offer of $21 a share, or $544 million, the same price Kellwood twice rejected last fall.
Asked for comment, Sun Capital said, "As we have said before, our straong preference is to acquire Kellwood in a friendly negotiated transaction, but we are prepared to take all necessary steps to protect the value of our existing 9.9 percent ownership position in Kellwood."
CtW Investment Group, which works with pension funds sponsored by Change to Win unions that own about 1 percent of Kellwood shares, said it would support a hostile takeover but is skeptical of a $21-a-share price, saying it is "insufficient."
Kellwood is the parent of various outdoor brands, including Kelty, Sierra Designs, Royal Robbins and Slumberjack.
Deckers shares drop on analyst downgrade
Shares of Deckers Outdoor (Nasdaq: DECK) dropped on Jan. 2 after an analyst downgraded the company based on its high share price even as he raised his fourth-quarter earnings estimate.
Wedbush Morgan Securities analyst Jeff Mintz said in a note to investors that the company's Ugg sheepskin boots, which have been a bright spot in the lackluster footwear industry, are outperforming expectations.
"Our channel checks this holiday indicate that Uggs are selling strongly at full price despite the promotional retail environment, and we have seen stock-outs in multiple channels, including Nordstrom," he wrote.
He said Ugg revenue growth is likely to moderate in 2008 but still remain high, falling to 23 percent in 2008 from 59 percent in 2007.
However, the stock price reflects a growth expectations that are probably too optimistic, Mintz said. "Although some of the most optimistic scenarios imply earnings per share above $7, we believe the most likely scenarios produce earnings per share lower than that," Mintz wrote.
He increased his 2007 earnings estimate to $4.90 from $4.66 per share, but cut his rating to "Hold" from "Buy." He also raised his price target to $144 from $137.
Shares fell $1.10 to close at $153.96 on Jan. 2, after trading as low as $147.67 earlier in the day. The stock has traded between $55.98 and $166.50 in the past year.
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