Vermont Teddy Bear taken private

Shelburne, VT-based Vermont Teddy Bear Co., which mails floral gifts title Calyx & Corolla, as well as gift books PajamaGram and TastyGram, on May 16 announced a definitive agreement to be taken private by an investment group led by Boston-based private equity firm The Mustang Group.

Under the terms of the agreement, Vermont Teddy Bear’s common stockholders not continuing as investors in the company will receive $6.50 in cash per share upon the closing of the transaction, which is expected to occur by Sept. 30.

President/CEO Elisabeth Robert will remain in her position after the transaction closes, as will vice president of marketing Irene Steiner, vice president of operation Catherine Camardo, and chief accounting officer Mark Sleeper. “I’m committed to being here at the company for at least five years coinciding with the date of the merger,” Robert says.

With new owners come the infusion in capital, Robert says, which Vermont Teddy Bear will use to invest in more private-label merchandise “and down the road explore the opportunity to make another transaction.” The Mustang Group is a private equity firm that invests in middle-market companies throughout North America. The debt financing for the transaction has been committed by Banknorth.

Private life

As a private company, Vermont Teddy Bear will no longer face the challenges of complying with increasingly costly public-company requirements, Robert says. “Being public has the added complexity of the Sarbanes-Oxley requirements, which raises the bar with what it means to be a public company in terms of added time and money spent complying with its regulations.”

The Sarbanes-Oxley Act of 2003, enacted in the wake of the Enron scandal, protects shareholders of public companies from corporate accounting misdeeds. It requires public companies to create an accounting oversight board, a subcommittee of the board of directors, to oversee all accounting efforts, from financial statements to tax returns. The law also requires that audit committee members serve no more than two terms of five years each. And two members of the committee must be certified public accountants. What’s more, the penalties for noncompliance are stiff. For example, corporate officers who knowingly sign false financial statements can face a hefty $5 million fine and up to 20 years in prison. (For more, see “Complying with the Sarbanes-Oxley Act,” Catalog Age, March 2003 issue.)

Going private was hardly a spur-of-the-moment decision for Vermont Teddy Bear. The company entered into this agreement following the unanimous recommendation of the members of its board of directors, based on a unanimous recommendation of a special committee of independent directors. Investors include members of the company’s management team and Middlebury, VT-based investment firm FreshTracks Capital.

“A going-private transaction requires a lot of care. There were lawyers and discussions and meetings over many months,” Robert says. “In fact, we started last November by engaging an investment banking firm [New York-based Houlihan, Lokey, Howard & Zukin Financial Advisors] and but we talked to scores of financial and strategic acquirers,” she says.

In recent weeks, private equity groups have raided the industry, scooping up the likes of Dallas-based cataloger/retailer Neiman Marcus (Texas Pacific and Warburg Pincus) in May, Merrimack, NH-based cataloger/retailer Brookstone (Boston-based private equity firm JW Childs Associates and Singapore-based investment company Temasek Holdings with OSIM International, a Singapore-based retailer of health and fitness products) in April, and Westerly, RI-based Paragon Holdings (Reliant Equity Investors/BluSky Brands) in March.

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