Will Signet and Zale have to stop the wedding?
TIG Advisors, an investment company that owns 9.5 percent of Zale Corp.’s stock, is urging fellow shareholders to vote against the company’s pending acquisition by Signet, calling the purchase “inadequate” and “grossly flawed.”
The vote on the $1.4 billion deal is due to take place May 29. TIG’s proxy statement urges shareholders either to vote against the acquisition or delay their vote, so that a quorum, or majority of shareholders, would not be present.
In arguing for the quorum option, the presentation notes that Zale and Signet, fearing a lengthy regulatory review—which never occurred—negotiated a long end date (Feb. 15, 2015). TIG says shareholders can take advantage of this period to see further financial results from Zale.
The company’s largest shareholder—Golden Gate, which owns 23 percent of the company—has said it supports the acquisition, which values the company at $21 a share. If shareholders approve the deal, TIG says it plans to pursue an appraisal claim against Signet, which involves the dissenting shareholder taking its case to court.
According to The Wall Street Journal, TIG’s filing is a sign of a growing trend it calls “bumpitrage,” where activist investors take a stake in a company prior to a takeover and push for a higher price.
“The practice had been successful in several deals, most notably the fight over Dell Inc.’s $25 billion buyout,” the newspaper wrote.
In a presentation filed May 9 with the Securities and Exchange Commission—titled “Right Deal—But the Wrong Price”—TIG argues the current deal does not reflect the potential of Zale, whose turnaround was cut short.
It says the deal relies on what it calls “stale financial forecasts,” and if Zale’s latest business projections were announced prior to the merger, the company’s valuation would have been higher.
The TIG filing also argues that the merger process was flawed, noting there was no real sales process, and saying it was replete with conflicts of interests.
For instance, while Bank of America provided a “fairness opinion” for Zale on the deal, TIG notes that the financial institution’s advisors were also trying to solicit business from Signet. It further argues that when Golden Gate indicated that it wanted to sell its shares, as it did in October, that created a potential conflict, since a board member from Golden Gate was on the negotiating committee with Signet. It finally contends that, after Signet indicated it would like to keep Zale CEO Theo Killion in his position, that created a conflict with management.
TIG’s filings do not specify any possible deal it might accept. A spokesman declined further comment.
Zale spokeswoman Roxane Barry tells JCK: “The company is fully committed to completing our transaction with Signet. Zale’s board of directors firmly believes that this transaction provides immediate and compelling value and is in the best interests of our shareholders.”
Signet declined comment.
At least five shareholder lawsuits have also been filed in Delaware trying to block the transaction. Signet management has called them “without merit.”
Further coverage of Signet’s pending acquistion of Zale: