With TIG Advisors sending out almost-daily missives expressing opposition to Signet’s deal for Zale, it is clear that the purchase now faces a rockier road than it had in the past. The smart money still thinks that it will go through in at least some form; even TIG says it doesn’t oppose the acquisition, it just thinks it undervalues the company. (Its first presentation was titled “Right Deal, but the Wrong Price.”)
But it’s worth looking at this in a larger context: These pre-deal headaches may now be a regular part of the M&A process. In 2012, some 96 percent of acquisitions valued at more than $500 million drew shareholder lawsuits; the Signet-Zale deal has already attracted five. But TIG’s gambit seems part of a newer trend called “bumpitrage,” where activist investors take a stake in a soon-to-be acquired company and try to get it to raise its selling price, often using the same arguments cited in lawsuits. The rationale for bumpitrage seems to be the same one for shareholder litigation: In most cases, companies will pay a decent amount of money to make a nuisance go away. (Question: If Signet does raise its current $21-per-share bid—TIG has suggested $28.60 would be acceptable—does that mean the shareholder lawsuits will have more or less merit?)
The gamble that TIG is making is that Signet is so invested in this deal that it is willing to raise its bid (which it has done twice already) and not walk away. But if the bid is voted down and Signet backs out, Zale’s share price will almost certainly fall. Perhaps the most compelling argument in all of Zale’s filings is the fact that, since the merger, no other company has expressed any interest in buying it.
(The proxy does mention that an overseas entity had expressed interest in the company to the Zale board and asked to begin due diligence, but never put together a formal proposal. JCK can reveal that entity was Indian company Gitanjali, owner of the Samuels chain, which had hinted at a possible acquisition publicly in the past.)
The irony here is that, judging from Zale’s proxy statement, the companies expected a far greater regulatory issue than they end up having. Though the word antitrust appears 28 times in the SEC filing, in the end the deal received regulatory clearance without breaking a sweat. But because of those concerns, the deal was given an extended time to close, according to TIG. Now, the investment firm is recommending that shareholders use that time to have the deal delayed and renegotiated.
Publicly, neither side is willing to speculate on which way this will go. The New York Times’ Dealbook has proclaimed the deal is “unlikely to be approved at this point”—but it never says where that comes from. TIG may have momentum on its side: One 7.42 percent shareholder, Gabelli, has announced it’s considering voting against the deal. As TIG owns 9.5 percent of the company, that would bring the dissident side within range of the 22 percent share of Zale’s largest shareholder, Golden Gate, which is on record favoring the deal. This could end up going down to the wire, as did Sotheby’s battle with dissident shareholder Daniel Loeb, which was put to rest only the day before a scheduled vote, with neither side sure where the final tally would end up.
The only clue I can find is a small bit in The Wall Street Journal, which quotes a person close to TIG—generally a fudge phrase meaning the info came from TIG itself or a spokesperson—as saying that Zale will likely postpone the vote if it doesn’t have a majority. At press time, the vote is still scheduled for May 29.