Bauer Shareholders Opt to Roll the Dice

Proving that there’s no such thing as a sure thing, shareholders of Eddie Bauer Holdings voted on Feb. 8 against the proposed sale of the apparel cataloger/retailer to private equity firms Golden Gate Capital and Sun Capital Partners. Observers say that stockholders rebuffed the deal because the price — $9.25 per share — was too low. But in rejecting the terms, “the shareholders are really rolling the dice here,” says David Solomon, co-CEO of New York investment bank Goldsmith, Agio, Helms.

Golden Gate and Sun Capital had agreed in November to buy the $1.75 million Bauer for $614 million, including $328 million in debt. At the February shareholders meeting, 44% of the votes were for the merger and about 37% against. The proposal required approval of more than 50% of the votes for the deal to proceed.

The price “was not terribly appealing,” says Stuart Rose, managing director of Wellesley, MA-based investment bank Tully & Holland. At $9.25 a share, the price was 12% higher than what Bauer’s stock was trading at. But only a few months prior to the offer, Bauer had been trading at $11, and its 52-week high was $15.55. “So in effect the bid was forcing folks to lock in their losses,” Rose says.

“This bid was good if you felt the future wasn’t so bright,” Rose continues. “Not an unreasonable assumption, but if you still held the stock, you were probably an optimist.”

According to a statement, Bauer will continue to operate as a publicly traded business and “will be evaluating appropriate next steps.” The day after the shareholder meeting, Bauer president/chief executive Fabian Mansson resigned. Board member Howard Gross, a former president/CEO of Limited Brands and Victoria’s Secret Stores, will serve as interim CEO.

Lee Helman, managing director of New York investment bank Financo, predicts that Bauer “will operate independently, try to fix the merchandise, and find a strong merchant as CEO.”

But some wonder whether it might be too late to fix the company. Solomon, for instance, worries that Bauer “may not have enough time to turn things around before they’re in default of their loans.” He adds that “during the past four years same-store sales have fallen 19%. They’re carrying a lot of debt. And their EBITDA is falling 24% annually. This is a sick business that doesn’t have a handle on its costs.”