SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
(Rule 13e-100)
RULE 13e-3 TRANSACTION STATEMENT PURSUANT TO SECTION 13(e)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
HANOVER DIRECT, INC.
(Name of the Issuer)
Chelsey Acquisition, Inc.
Chelsey Direct, LLC
Chelsey Finance, LLC
Chelsey Capital Profit Sharing Plan
DSJ International Resources Ltd.
William Wachtel
Stuart Feldman
(Name of Persons Filing Statement)
Common Stock, $.0.01 par value per share
(Title of Class of Securities)
410783302
(CUSIP Number of Class of Securities)
Daniel J. Barsky, Esq.
Senior Vice President, General Counsel and Secretary
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07086
(201) 272-3425
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications
on Behalf of Persons Filing Statement)
With copies to:
Martin Nussbaum, Esq.
Dechert LLP
30 Rockefeller Plaza
New York, NY 10112-22000
212-698-3500
This statement is filed in connection with (check the appropriate box):
a. x The filing of solicitation materials or an Proxy Statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934.
b. o The filing of a registration statement under the Securities Act of 1933.
c. o A tender offer.
d. o None of the above.
Check the following box if the soliciting materials or Proxy Statement referred to in checking box (a) are preliminary copies: x
Check the following box if the filing is a final amendment reporting the results of the transaction: o
Calculation of filing fee: | |
Transaction Valuation:$1,765,403.50* | Amount of Filing Fee: $188.90 |
* For purposes of calculating the filing fee only. The transaction valuation is determined based upon the product of (i) 7,061,614 shares of common stock of Hanover Direct, Inc. outstanding on December 11, 2006 (which excludes treasury shares and shares owned by Chelsey Direct, LLC and its affiliates that will be cancelled in connection with the merger), and (ii) the merger consideration of $0.25 per share of common stock (equal to $1,765,403.50). There are no outstanding stock options to purchase shares of Hanover Direct, Inc. common stock with a per share exercise price less than $0.25. The amount of the filing fee, calculated in accordance with Rule 0-11(c) under the Securities Exchange Act of 1934, was determined by multiplying 0.000107 by the aggregate transaction valuation of $1,765,403.50.
x Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and date of its filing.
Amount Previously Paid: $188.90
Form or Registration No.: Schedule 14A
Filing Party: Hanover Direct, Inc.
Date Filed: December 15, 2006
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Introduction
This Amendment No. 2 to Rule 13e-3 Transaction Statement (this “Statement”) is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by (1) Hanover Direct, Inc., a Delaware corporation (“Hanover,” the “Issuer” or the “Company”), the issuer of common stock, par value $0.01 per share (the “Common Stock”), that is subject to the Rule 13e-3 transaction, (2) Chelsey Direct, LLC, a Delaware limited liability company (“Chelsey”), (3) Chelsey Acquisition , Inc. a Delaware corporation and a wholly owned subsidiary of Chelsey (“MergerCo”), (4) Chelsey Capital Profit Sharing Plan (the “Chelsey Plan”), is the sole member of Chelsey and Chelsey Finance, LLC, (5) DSJ International Resources Ltd. (“DSJI”), a New York corporation, the sponsor of the Chelsey Plan, (6) Chelsey Finance, LLC, a New York limited liability company (“Chelsey Finance”), wholly owned by the Chelsey Plan and is a stockholder of Hanover, (7) William Wachtel, the Chairman of the board of directors of Hanover, the sole Manager of Chelsey and the sole officer and director of MergerCo and (8) Stuart Feldman, a director of Hanover, the sole officer and director of DSJI and a principal beneficiary of the Chelsey Plan (together with Hanover, Chelsey, MergerCo, the Chelsey Plan, DSJI, Chelsey Finance and William Wachtel, the “Filing Persons”).
This Statement relates to the Agreement and Plan of Merger dated as of November 27, 2006 (the “Merger Agreement”) by and among Chelsey, MergerCo and the Company. The Merger Agreement provides, among other things, for the merger of MergerCo into the Company (the “Merger”) with the Company continuing as the surviving corporation (the “Surviving Corporation”). In the Merger, (a) each outstanding share of Common Stock of the Company will be converted into the right to receive $0.25 in cash, without interest and less withholding taxes (except that any shares held by Chelsey or any Chelsey affiliate or held in the Company’s treasury which will be canceled) and (b) each outstanding share of Series C Preferred Stock, par value $.01 per share (the “Series C Preferred”) of the Company will be cancelled and (c) the warrant held by Chelsey to acquire 10,529,366 shares of Common Stock will be cancelled.
Concurrently with the filing of this Statement, the Company is filing with the SEC an amended proxy statement (the “Proxy Statement”) under Regulation 14A of the Exchange Act, pursuant to which the Company’s board of directors is soliciting proxies from stockholders of the Company in connection with the Merger. The Proxy Statement is attached hereto as Exhibit (a)(1). A copy of the Merger Agreement is attached to the Proxy Statement as Appendix A and is incorporated herein by reference. As of the date hereof, the Proxy Statement is in preliminary form and is subject to completion or amendment.
Pursuant to General Instruction F to Schedule 13E-3, the information in the Proxy Statement, including all annexes, exhibits and appendices thereto, is expressly incorporated herein by reference herein in its entirety, and responses to each item herein are qualified in their entirety by the information contained in the Proxy Statement. The cross references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3. Capitalized terms used but not defined herein have the meanings assigned to them in the Proxy Statement.
All information contained in, or incorporated herein by reference into, this Statement concerning each Filing Person was supplied by such Filing Person, and no other Filing Person, including the Company, takes responsibility for the accuracy of such information as it relates to any other Filing Person.
The filing of this Statement shall not be construed as an admission by any Filing Person or by any affiliate of a Filing Person, that the Company is “controlled” by any other Filing Person, or that any other Filing Person is an “affiliate” of the Company within the meaning of Rule 13e-3 under Section 13(e) of the Exchange Act.
ITEM 1. SUMMARY TERM SHEET.
The information in the Proxy Statement under the captions “SUMMARY TERM SHEET” and “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER” is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION.
(a) The information set forth on the cover page of the Proxy Statement and in the Proxy Statement under the captions “SUMMARY TERM SHEET - The Companies” and “PARTIES INVOLVED IN THE PROPOSED MERGER” is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the caption “INFORMATION CONCERNING THE ANNUAL MEETING AND THE MERGER,” “SUMMARY TERM SHEET – The Companies” and on the cover page of the Proxy Statement is incorporated herein by reference.
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(c)-(d) The information set forth in the Proxy Statement under the caption “COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION” is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the Proxy Statement under the captions “TRANSACTIONS IN HANOVER COMMON STOCK” and “EXECUTIVE COMPENSATION” is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSONS.
(a)-(b) The information set forth in the Proxy Statement under the captions “PARTIES INVOLVED IN THE PROPOSED MERGER,” “INFORMATION REGARDING THE CHELSEY GROUP,” “SUMMARY TERM SHEET – The Companies, – the Merger and – Interests of Certain Persons in the Merger,” SPECIAL FACTORS – Interests of Certain Persons in the Merger and – Purposes and Plans for Hanover After the Merger” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference.
(c) “PARTIES INVOLVED IN THE PROPOSED MERGER,” “INFORMATION REGARDING THE CHELSEY GROUP,” “ELECTION OF DIRECTORS” and “EXECUTIVE COMPENSATION – Executive Officers,” “SUMMARY TERM SHEET – Interests of Certain Persons in the Merger,” SPECIAL FACTORS – Interests of Certain Persons in the Merger, and – Purposes and Plans for Hanover After the Merger” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) (1). Not applicable.
(a) (2). The information set forth in the Proxy Statement and under the following captions in incorporated herein by reference: “SUMMARY TERM SHEET– the Merger, – Going Private Transaction and –Information Regarding the Annual Meeting,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” “INFORMATION CONCERNING THE ANNUAL MEETING – Vote Required,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Valuation Analysis Of Goldsmith, Agio, Helms & Lynner, – Chelsey’s Purpose, Reasons For and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Interests of Certain Person in the Merger, – Certain Effects of the Merger, – Accounting Treatment and – Material United States Federal Income Tax Consequences” and “THE MERGER AGREEMENT.” Appendix A to the Proxy Statement is also incorporated herein by reference.
(c) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” “SPECIAL FACTORS – Certain Effects Of The Merger, – Interests of Certain Persons in the Merger and – Purposes and Plans for Hanover after the Merger,” “THE MERGER AGREEMENT,” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET– Appraisal Rights” and “APPRAISAL RIGHTS” is incorporated herein by reference. Appendix B to the Proxy Statement is also incorporated herein by reference.
(e) The information set forth in the Proxy Statement under the caption “SPECIAL FACTORS -Recommendation of the Board of Directors; Reasons for the Merger and – Provision for Unaffiliated Stockholders” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
(f) Not applicable.
ITEM 5. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS AND AGREEMENTS.
(a) The information set forth in the Proxy Statement under the captions “SPECIAL FACTORS – Background of the Merger, – Interests of Certain Persons in the Merger,” “TRANSACTIONS IN HANOVER COMMON STOCK,” “PAST TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS,” “RELATED PARTY TRANSACTIONS,” “EXECUTIVE COMPENSATION – Information Regarding Executive Compensation, – Stock Options and Stock Appreciation Rights, – Employment Contracts, Termination of Employment and Change-in-Control Arrangements” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference.
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(b)-(c) The information set forth in the Proxy Statement under the captions SPECIAL FACTORS – Background of the Merger, -Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Certain Effects of the Merger and – Purposes and Plans for Hanover After the Merger,” “PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS,” “RELATED PARTY TRANSACTIONS,” “CERTAIN LEGAL PROCEEDINGS REGARDING THE MERGER,” “ELECTION OF DIRECTORS” and “CORPORATE GOVERNANCE AND BOARD COMMITTEES” is incorporated herein by reference.
(e) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – the Merger; Going Private Transaction and – Interests of Certain Persons in the Merger,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger and – Interests of Certain Persons in the Merger,” “THE MERGER AGREEMENT,” “EXECUTIVE COMPENSATION – Information Regarding Executive Compensation, – Stock Options and Stock Appreciation Rights and – Employment Contracts, Termination of Employment and Change-in-Control Arrangements,” “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,” and “RELATED PARTY TRANSACTIONS” is incorporated herein by reference. Appendices A and B to the Proxy Statement are also incorporated herein by reference.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(b) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET - the Merger; Going Private Transaction,” and “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Certain Effects of the Merger and – Purposes and Plans for Hanover After the Merger” and “THE MERGER AGREEMENT” is incorporated herein by reference.
(c)(1)-(8) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” “SPECIAL FACTORS – Certain Effects of the Merger and – Purposes and Plans for Hanover After the Merger,” “THE MERGER AGREEMENT” and “INFORMATION REGARDING THE CHELSEY GROUP” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” “SPECIAL FACTORS – Background of the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger, and – Purposes and Plans for Hanover After the Merger” is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger and – Purposes and Plans for Hanover After the Merger” is incorporated herein by reference.
(c) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Certain Effects of the Merger and – Purposes and Plans for Hanover After the Merger” is incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger; Going Private Transaction,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” and “SPECIAL FACTORS – Certain Effects of the Merger, – Chelsey’s Purpose; Reasons For and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Purposes and Plans for Hanover After the Merger, – Interests of Certain Persons in the Merger and – Material United States Federal Income Tax Consequences” and “THE MERGER AGREEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – Recommendation, – Valuation Analysis of Goldsmith, Agio, Helms & Lynner, LLC and – Reasons for the Merger”,
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“QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER”, “SPECIAL FACTORS – Background of the Merger, – Recommendations of the Board of Directors, Reasons for the Merger, – Valuation Analysis Of Goldsmith Agio, Helms & Lynner, – Chelsey’s Purpose; Reasons for and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger, – Certain Effects of the Merger, – Purpose and Plans for Hanover after the Merger and – Interests of Certain Persons in the Merger,” “INFORMATION CONCERNING THE ANNUAL MEETING,” “THE MERGER AGREEMENT,” “SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION,” “FINANCIAL PROJECTIONS,” “COMMON STOCK MARKET PRICE AND DIVIDEND INFORMATION” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement and Exhibit (c) attached hereto are also incorporated herein by reference.
(c) The transaction is not structured so that approval of at least a majority of unaffiliated security holders is required. The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” “INFORMATION CONCERNING THE ANNUAL MEETING – Record Date and Quorum Requirement, – Vote Required, – Voting on Other Matters and – Additional Voting Information,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Valuation Analysis Of Goldsmith Agio, Helms & Lynner and – Position of Chelsey as to Fairness of the Merger” is incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET– Position and Recommendation of Board of Directors and Position of Chelsey,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Position of Chelsey as to Fairness of the Merger and – Interests of Certain Persons in the Merger” is incorporated herein by reference.
(e) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET– The Merger, – Position and Recommendation of Board of Directors and Position of Chelsey,” “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Position of Chelsey as to Fairness of the Merger and – Interests of Certain Persons in the Merger” is incorporated herein by reference.
(f) The information set forth in the Proxy Statement under the captions “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Chelsey’s Purpose; Reasons for and Structure of the Merger and – Position of Chelsey as to Fairness of Merger” is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – Valuation Analysis of Goldsmith, Agio, Helms & Lynner, – Position and Recommendation of Board of Directors, Position of Chelsey” and “SPECIAL FACTORS – Background of the Merger, – Recommendation of the Board of Directors; Reasons for the Merger, – Valuation Analysis of Goldsmith, Agio, Helms & Lynner, -Discussion Materials Prepared by Houlihan Lokey and – Position of Chelsey as to Fairness of the Merger” and “WHERE YOU CAN FIND MORE INFORMATION” and “INCORPORATION BY REFERENCE” is incorporated herein by reference. Exhibit (c) attached hereto is incorporated herein by reference.
ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – The Merger and – Financing, Source of Funds,” “SPECIAL FACTORS – Financing and Source of Funds” and “THE MERGER AGREEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
(c) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – the Annual Meeting,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” “INFORMATION CONCERNING THE ANNUAL MEETING – Solicitation, Revocation and Use of Proxies” and “SPECIAL FACTORS – Fees and Expenses” is incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – Financing, Source of Funds,” “SPECIAL FACTORS – Financing; Source of Funds” and “THE MERGER AGREEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – Interests of Certain Persons in the Merger,” “SPECIAL FACTORS – Interests of Certain Persons in the Merger,” “SECURITY
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “TRANSACTIONS IN HANOVER COMMON STOCK” is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the caption “TRANSACTIONS IN HANOVER COMMON STOCK” is incorporated herein by reference.
ITEM 12. THE SOLICITATION OR RECOMMENDATION.
(d) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – the Merger, – Going Private Transaction, – Recommendation, – Interests of Certain Persons in the Merger, – Information Regarding the Annual Meeting,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” “INFORMATION CONCERNING THE ANNUAL MEETING” and “SPECIAL FACTORS – Background of the Merger”, – Recommendation of the Board of Directors; Reasons for the Merger, – Position of Chelsey as to Fairness of the Merger, and – Interests of Certain Persons in the Merger” and “THE MERGER AGREEMENT” is incorporated herein by reference. Appendix A to the Proxy Statement is also incorporated herein by reference.
(e) The information set forth in the Proxy Statement under the captions “SUMMARY TERM SHEET – Position and Recommendation of the Board of Directors and Position of Chelsey and – Reasons for the Merger,” “INFORMATION CONCERNING THE ANNUAL MEETING –Solicitation, Revocation and Use of Proxies” and “SPECIAL FACTORS – Background of the Merger, – Recommendations of the Board of Directors, Reasons for the Merger, – Chelsey’s Purpose; Reasons for and Structure of the Merger, – Position of Chelsey as to Fairness of the Merger and – Purposes and Plans for Hanover After the Merger” is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS.
(a) The information set forth in the Proxy Statement under the captions “SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA,” “PRO FORMA FINANCIAL INFORMATION,” “FINANCIAL PROJECTIONS,” “WHERE YOU CAN FIND MORE INFORMATION��� and “DOCUMENTS INCORPORATED HEREIN BY REFERENCE” is incorporated herein by reference.
(b) The information set forth in the Proxy Statement under the caption “PRO FORMA FINANCIAL INFORMATION” is incorporated herein by reference.
ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) – (b) The information set forth in the Proxy Statement under the caption “SUMMARY TERM SHEET – the Merger, – Going Private Transaction, – Position and Recommendation of Board of Directors and Position of Chelsey, – Interests of Certain Persons in the Merger,” “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER,” “SPECIAL FACTORS – Background of the Merger, – Recommendations of the Board of Directors, Reasons for the Merger, – Position of Chelsey as to Fairness of the Merger, – Interests of Certain Persons in the Merger, – Purposes and Plans for Hanover After the Merger, – Financing, Source of Funds and – Fees and Expenses,” “INFORMATION CONCERNING THE ANNUAL MEETING - Solicitation, Revocation and Use of Proxies” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” is incorporated herein by reference.
ITEM 15. ADDITIONAL INFORMATION.
(b) The information set forth in the Proxy Statement, including all appendices thereto, is incorporated herein by reference.
ITEM 16. EXHIBITS.
(a) Preliminary Proxy Statement and Form of Proxy Card, including all appendices thereto, (incorporated herein by reference to the Schedule 14A Preliminary Proxy Statement filed with the SEC concurrently with this Statement).
(b) None.
(c) Valuation Analysis of Goldsmith, Agio, Helms & Lynner, LLC dated November 8, 2006 and Revised Discussion Materials prepared by Houlihan Lokey Howard & Zukin dated April 12, 2006, Updated Discussion Materials prepared by Houlihan Lokey Howard & Zukin dated May 5, 2006 and Revised Discussion Materials prepared by Houlihan Lokey Howard & Zukin dated May 24, 2006 attached hereto.
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(d) Agreement and Plan of Merger, dated November 27, 2006, between Chelsey Direct, LLC, Chelsey Acquisition, Inc. and Hanover Direct, Inc. (incorporated herein by reference to Appendix A to the Schedule 14A Preliminary Proxy Statement filed with the SEC concurrently with this Statement).
(e) None.
(f) Section 262, Appraisal Rights, of the Delaware General Corporation Law (incorporated herein by reference to Appendix B to the Schedule 14A Preliminary Proxy Statement filed with the SEC concurrently with this Statement).
(g) None.
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SIGNATURES
After due inquiry and to the best of its knowledge and belief, the undersigned certify that the information set forth in this Statement is true, complete and correct.
Date: February 16, 2007 |
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| HANOVER DIRECT, INC. (Registrant) |
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| By: /s/ Wayne P. Garten |
| Wayne. P. Garten, |
| President |
| and Chief Executive Officer |
| (On behalf of the registrant and as principal executive officer) |
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Date February 16, 2007 |
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| CHELSEY DIRECT, LLC |
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| By: /s/ William B. Wachtel |
| William Wachtel, Manager |
Date: February 16, 2007 |
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| CHELSEY ACQUISITION, LLC |
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| By: /s/ William B. Wachtel |
| William Wachtel, Manager |
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Date: February 16, 2007 |
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| CHELSEY FINANCE, LLC |
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| By: /s/ William B. Wachtel |
| William Wachtel, Manager |
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Date: February 16, 2007 |
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| DSJ INTERNATIONAL RESOURCES, LTD. |
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| By: /s/ Stuart Feldman |
| Stuart Feldman, President |
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Date: February 16, 2007 | CHELSEY PROFIT SHARING PLAN |
| By, DSJ International Resources, Ltd., as plan sponsor |
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| By: /s/ Stuart Feldman |
| Stuart Feldman, President |
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Date February 16, 2007 | /s/ William Wachtel |
| William Wachtel |
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Date: February 16, 2007 | /s/ Stuart Feldman |
| Stuart Feldman |
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EXHIBIT C APRIL 12, 2006 | Hanover Direct, Inc. |
Confidential | Revised Discussion Materials with |
| the Special Committee of the Board of Directors |
Houlihan Lokey Howard & Zukin
245 Park Avenue
New York, NY 10167
212-497-4100
www.hlhz.com
New York Los Angeles Chicago San Francisco Washington D.C.
Minneapolis Dallas Atlanta London Paris
Table of Contents
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Confidential
Process
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SUMMARY OFDUEDILIGENCEPERFORMED |
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In preparing our preliminary findings, we have: | |
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• | Reviewed historical financial information |
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• | Reviewed the 2006 internal financial budget for the Company prepared by management |
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• | Reviewed various operational and financial analyses prepared by management |
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• | Held various meetings and discussions with members of the senior management of the Company (Wayne Garten, John Swatek, Charlie Pellenberg, Neil Mulhall) regarding their assessment of the past and current business operations, financial condition and future prospects (2006) of the Company |
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• | Reviewed the reported price and trading activity for the common stock of the Company |
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• | Compared financial and stock market information for the Company with similar information with respect to the securities of other publicly traded companies |
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• | Reviewed the financial terms of recent business combinations in the catalog/internet retail industry |
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• | Reviewed selected going private transactions |
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• | Reviewed the rights and privileges of the Company’s Series C Preferred Stock |
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• | Reviewed preferred stock yields for companies with similar credit statistics as Hanover |
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Confidential
Confidential
Financial Performance and Projections
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FINANCIALPERFORMANCE | ||
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• | After the disappointing FY 2003, Hanover has experienced healthier revenue growth and profitability in FY 2004 and FY 2005. |
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Revenue |
($ in Millions)
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EBITDA & EBITDA Margin1 |
($ in Millions)
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1 | EBITDA and EBITDA margins are adjusted for one-time non-recurring items, but do not include public company costs addback. Source: Form 10-K and Management. |
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Confidential
Financial Performance and Projections
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2006 BUDGET | ||
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• | The Company has not prepared projections beyond its 2006 budget. | |
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• | 2006 budget has yet to be approved by the Board of Directors. | |
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• | The Company projects a decline in EBITDA for 2006. The EBITDA margin1 for 2005 was 4.8% and is budgeted to decrease to 3.8% for 2006. Management has indicated that there are several reasons for such a decline: | |
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| • | Global Sourcing Initiatives: To lower merchandising costs and improve product mix, Hanover plans to hire additional personnel in the U.S. to source from the Far East. As a result, the travel and entertainment expenses are projected to increase by approximately $0.69 million. |
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| • | E-Commerce Capability: Hanover’s Internet sales have experienced a much higher growth rate than the traditional mail order catalog (23.9% vs. 2.0% in FY 2005). The Company plans to invest more resources to enhance its e-commerce platform. |
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| • | Additional Headcount: Hanover has projected to add headcount in the Human Resources and Finance functions. Overall, the Company will incur an additional $2.23 million in payroll and $0.79 million in fringe benefits. |
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| • | Paper, Printing and Postage: The Company projected an increase of $7.6 million in Catalog/Advertising cost attributed mainly to increase in paper and printing costs, as well as to the USPS postage. |
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1 | EBITDA margins are adjusted for one-time non-recurring items, but do not include public company costs add-back. Source: Form 10-K and Management. |
4
Confidential
Financial Performance and Projections
|
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|
2006 BUDGET (CONTINUED) | ||
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• | Below is a list of costs that may be adjusted either because of their one-time nature, or the expenses will bring long term benefits to the Company: |
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Potential Cost Adjustments in 2006 |
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| ||||
(figures in millions) |
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Information Systems |
| $ | 0.4 |
|
Restructuring Special Charges |
| $ | 0.7 |
|
Global Sourcing Related Increase |
| $ | 0.7 |
|
Increase in Payroll (excl. reclass) |
| $ | 2.2 |
|
Increase in Fringe |
| $ | 0.8 |
|
Public Company Costs |
| $ | 2.0 |
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| ||
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| $ | 6.8 |
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| ||||
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• | Information Systems: consists of increase in payroll and fringe benefits for additional positions. |
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• | Global Sourcing: incremental travel and entertainment expenses related to the Global Sourcing Initiatives discussed |
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|
• | Fringe and Payroll: increase headcount in Human Resources, Finance and E-Commerce departments. |
5
Confidential
Financial Performance and Projections
REPRESENTATIVE LEVEL
(figures in millions) |
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| Fiscal Year Ended December 31, |
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| Adjusted |
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| |||||||||||
|
| 12/31/03 |
| 12/31/04 |
| 12/31/05 |
| 12/31/06 |
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| 12/31/06 |
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Reported Revenue |
| $ | 370.1 |
| $ | 360.5 |
| $ | 407.4 |
| $ | 428.3 |
|
| $ | 428.3 |
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|
Revenue Growth % |
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| -2.6 | % |
| 13.0 | % |
| 5.1 | % |
|
| 5.1 | % |
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| ||||||||||||||||||||||
Less: Cost of Goods Sold |
| $ | 233.6 |
| $ | 216.9 |
| $ | 253.0 |
| $ | 262.4 |
|
| $ | 262.4 |
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| |||||||||||||||
Gross Profit |
| $ | 136.5 |
| $ | 143.6 |
| $ | 154.5 |
| $ | 165.8 |
|
| $ | 165.8 |
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|
Gross Profit Margin % |
|
| 36.9 | % |
| 39.8 | % |
| 37.9 | % |
| 38.7 | % |
|
| 38.7 | % |
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| ||||||||||||||||||||||
Less: Selling, General & Administrative |
| $ | 136.5 |
| $ | 134.6 |
| $ | 137.4 |
| $ | 152.6 |
|
| $ | 152.6 |
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|
Less: Special Charges |
| $ | 0.2 |
| $ | 1.7 |
| ($ | 0.1 | ) | $ | 0.0 |
|
| $ | 0.0 |
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|
|
Add: Depreciation and Amortization |
| $ | 5.7 |
| $ | 4.5 |
| $ | 3.7 |
| $ | 2.5 |
|
| $ | 2.5 |
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|
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|
|
Add: Adjustments(1) |
| $ | 5.5 |
| $ | 7.7 |
| $ | 0.8 |
| $ | 2.7 |
|
| $ | 6.8 |
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| |||||||||||||||
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| |||||||||||||
Adjusted EBITDA |
| $ | 11.1 |
| $ | 19.5 |
| $ | 21.6 |
| $ | 18.4 |
|
| $ | 22.5 |
|
|
|
|
|
|
EBITDA Margin % |
|
| 3.0 | % |
| 5.4 | % |
| 5.3 | % |
| 4.3 | % |
|
| 5.3 | % |
|
|
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| ||||||||||||||||||||||
Less: Depreciation and Amortization |
| $ | 5.7 |
| $ | 4.5 |
| $ | 3.7 |
| $ | 2.5 |
|
| $ | 2.5 |
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| |||||||||||||||
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Adjusted EBIT |
| $ | 5.4 |
| $ | 15.0 |
| $ | 17.9 |
| $ | 15.9 |
|
| $ | 20.0 |
|
|
|
|
|
|
EBIT Margin % |
|
| 1.4 | % |
| 4.2 | % |
| 4.4 | % |
| 3.7 | % |
|
| 4.7 | % |
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|
Footnotes: | |
| |
(1) | Adjustments: |
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Operating One-Time Charges/(Gains) |
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|
| Potential Cost Adjustments |
|
|
|
| |||
Severance and Termination Costs |
| $ | 0.7 |
| $ | 2.6 |
| $ | 0.8 |
| $ | 0.0 |
|
| Information Systems |
| $ | 0.4 |
| |||
Special Charges |
| $ | 1.3 |
| $ | 1.5 |
| ($ | 0.1 | ) | $ | 0.7 |
|
| Restructuring Special Charges |
| $ | 0.7 |
| |||
Facility Exit Costs |
| $ | 0.0 |
| $ | 0.2 |
| $ | 0.0 |
| $ | 0.0 |
|
| Global Sourcing Related Increase |
| $ | 0.7 |
| |||
Compensation Continuation Agreement Costs |
| $ | 3.1 |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
|
| Increase in Payroll (excl. reclass) |
| $ | 2.2 |
| |||
Change in Vacation of Sick Policy |
| ($ | 1.6 | ) | $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
|
| Increase in Fringe |
| $ | 0.8 |
| |||
Other Adjustsments |
|
|
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|
|
| Public Company Costs(2) |
| $ | 2.0 |
| |||
Legal and Audit Fees related to Restatement |
| $ | 0.0 |
| $ | 0.6 |
| $ | 2.6 |
| $ | 0.0 |
|
|
|
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|
|
Class Action Litigation Reserve |
| $ | 0.0 |
| $ | 0.5 |
| $ | 0.0 |
| $ | 0.0 |
|
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|
|
Rakesh Kaul Accrual |
| $ | 0.0 |
| $ | 0.2 |
| ($ | 4.5 | ) | $ | 0.0 |
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|
Company Adjustments |
|
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|
Public Company Costs(2) |
| $ | 2.0 |
| $ | 2.0 |
| $ | 2.0 |
| $ | 2.0 |
|
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| |||||||||||||
Total Adjustments |
| $ | 5.5 |
| $ | 7.7 |
| $ | 0.8 |
| $ | 2.7 |
|
|
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|
|
| $ | 6.8 |
|
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|
|
(2) | Based on discussion with Management. |
6
Confidential
Confidential
Valuation Implications
|
CHELSEYOFFER |
|
|
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|
|
(figures in millions, except per share data) |
|
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|
|
Chelsey Offer Price |
| $ | 1.25 |
|
Shares Outstanding(1) |
|
| 32.7 |
|
|
|
| ||
Equity Value |
| $ | 40.9 |
|
Add: Net Debt(2) |
|
| 30.0 |
|
Add: Preferred Stock(3) |
|
| 57.5 |
|
|
|
| ||
Enterprise Value |
| $ | 128.3 |
|
|
|
|
|
|
2005 Adjusted EBITDA(4) |
| $ | 21.6 |
|
|
|
| ||
Implied 2005 EBITDA Multiple |
|
| 5.9x |
|
|
|
| ||
|
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|
|
2006 Adjusted EBITDA per Budget(4) |
| $ | 18.4 |
|
|
|
| ||
Implied 2006 EBITDA Multiple |
|
| 7.0x |
|
|
|
| ||
|
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|
|
2006 Adjusted EBITDA with Addbacks(4) |
| $ | 22.5 |
|
|
|
| ||
Implied 2006 EBITDA Multiple |
|
| 5.7x |
|
|
|
|
|
Implied Multiple Analysis |
EBITDA Multiples
|
|
|
| ||
|
|
|
1 | Includes in-the-money options based on treasury method. |
|
|
2 | In calculating Net Debt, average Revolver balance for the past four quarters is used. |
|
|
3 | Liquidation preference plus accrued dividends as of 3/31/06. |
|
|
4 | Public company costs of $2.0 million per year have been eliminated, increasing EBITDA. |
|
|
5 | Comparable companies include: Coldwater Creek, Charming Shoppes, Blyth, Alloy and J Jill. |
8
Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED |
|
(figures in millions, except share data) |
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| |
2005 Adjusted EBITDA |
|
|
|
|
|
|
|
|
| $ | 19.6 |
|
|
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| |||||||||||||||||||||||||||||||||||||||||
|
| Public Company Costs |
|
| $ | 2.0 |
|
|
| Public Company Costs |
|
| $ | 1.0 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
|
| |||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 21.6 |
|
|
| EBITDA |
|
| $ | 20.6 |
|
|
| EBITDA |
|
| $ | 19.6 |
|
| |||||||||||||||||||||||||
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| |||||||||||||||||||||||||
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
| ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
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| 5.9x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
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|
|
| 6.2x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
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|
| 6.6x |
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| $ | 1.25 |
|
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| $ | 8.8 |
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| |
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| 6.0x |
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| $ | 1.29 |
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| $ | 9.1 |
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| 6.0x |
|
|
| $ | 1.10 |
|
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| $ | 7.8 |
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| 6.0x |
|
|
| $ | 0.92 |
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| $ | 6.5 |
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| |
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| 6.5x |
|
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| $ | 1.62 |
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| $ | 11.4 |
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| 6.5x |
|
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| $ | 1.42 |
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| $ | 10.0 |
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| 6.5x |
|
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| $ | 1.22 |
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| $ | 8.6 |
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| |
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| 7.0x |
|
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| $ | 1.95 |
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| $ | 13.8 |
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| 7.0x |
|
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| $ | 1.73 |
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| $ | 12.3 |
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| 7.0x |
|
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| $ | 1.52 |
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| $ | 10.7 |
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| |
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| 7.5x |
|
|
| $ | 2.27 |
|
|
| $ | 16.1 |
|
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| 7.5x |
|
|
| $ | 2.05 |
|
|
| $ | 14.5 |
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| 7.5x |
|
|
| $ | 1.82 |
|
|
| $ | 12.9 |
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| |
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|
| 8.0x |
|
|
| $ | 2.60 |
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|
| $ | 18.5 |
|
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| 8.0x |
|
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| $ | 2.36 |
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| $ | 16.7 |
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| 8.0x |
|
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| $ | 2.12 |
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| $ | 15.0 |
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| |
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| 8.5x |
|
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| $ | 2.93 |
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| $ | 20.8 |
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| 8.5x |
|
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| $ | 2.67 |
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| $ | 19.0 |
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| 8.5x |
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| $ | 2.41 |
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| $ | 17.1 |
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| |
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| 9.0x |
|
|
| $ | 3.26 |
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| $ | 23.2 |
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| 9.0x |
|
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| $ | 2.99 |
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| $ | 21.2 |
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| 9.0x |
|
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| $ | 2.71 |
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| $ | 19.3 |
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| |
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| 9.5x |
|
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| $ | 3.59 |
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| $ | 25.6 |
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| 9.5x |
|
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| $ | 3.30 |
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| $ | 23.5 |
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| 9.5x |
|
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| $ | 3.01 |
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| $ | 21.4 |
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| |
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| 10.0x |
|
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| $ | 3.92 |
|
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| $ | 27.9 |
|
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| 10.0x |
|
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| $ | 3.61 |
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| $ | 25.7 |
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| 10.0x |
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| $ | 3.31 |
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| $ | 23.5 |
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1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
9
Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED(CONTINUED) |
|
(figures in millions, except share data) |
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| 2006 Adjusted EBITDA per Budget |
|
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| $ | 16.4 |
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| Public Company Costs |
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| $ | 2.0 |
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| Public Company Costs |
|
| $ | 1.0 |
|
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| Public Company Costs |
|
| $ | 0.0 |
|
| ||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 18.4 |
|
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| EBITDA |
|
| $ | 17.4 |
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| EBITDA |
|
| $ | 16.4 |
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| EBITDA |
| Implied |
| Paid to |
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| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
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| 7.0x |
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| $ | 1.25 |
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| $ | 8.8 |
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| 7.4x |
|
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| $ | 1.25 |
|
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| $ | 8.8 |
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| 7.8x |
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| $ | 1.25 |
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| $ | 8.8 |
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|
|
|
|
|
|
|
|
|
|
| 6.0x |
|
|
| $ | 0.70 |
|
|
| $ | 4.9 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.52 |
|
|
| $ | 3.6 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.33 |
|
|
| $ | 2.3 |
|
|
|
|
|
| 6.5x |
|
|
| $ | 0.98 |
|
|
| $ | 6.9 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.78 |
|
|
| $ | 5.5 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.58 |
|
|
| $ | 4.1 |
|
|
|
|
|
| 7.0x |
|
|
| $ | 1.26 |
|
|
| $ | 8.9 |
|
|
|
|
| 7.0x |
|
|
| $ | 1.05 |
|
|
| $ | 7.4 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.83 |
|
|
| $ | 5.9 |
|
|
|
|
|
| 7.5x |
|
|
| $ | 1.54 |
|
|
| $ | 10.9 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.31 |
|
|
| $ | 9.3 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.08 |
|
|
| $ | 7.7 |
|
|
|
|
|
| 8.0x |
|
|
| $ | 1.82 |
|
|
| $ | 12.9 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.58 |
|
|
| $ | 11.2 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.33 |
|
|
| $ | 9.4 |
|
|
|
|
|
| 8.5x |
|
|
| $ | 2.10 |
|
|
| $ | 14.9 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.84 |
|
|
| $ | 13.1 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.58 |
|
|
| $ | 11.2 |
|
|
|
|
|
| 9.0x |
|
|
| $ | 2.38 |
|
|
| $ | 16.9 |
|
|
|
|
| 9.0x |
|
|
| $ | 2.11 |
|
|
| $ | 14.9 |
|
|
|
|
| 9.0x |
|
|
| $ | 1.83 |
|
|
| $ | 13.0 |
|
|
|
|
|
| 9.5x |
|
|
| $ | 2.66 |
|
|
| $ | 18.9 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.37 |
|
|
| $ | 16.8 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.08 |
|
|
| $ | 14.8 |
|
|
|
|
|
| 10.0x |
|
|
| $ | 2.94 |
|
|
| $ | 20.9 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.64 |
|
|
| $ | 18.7 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.33 |
|
|
| $ | 16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
10
Confidential
Valuation Implications
|
PUBLIC SHAREHOLDER CONSIDERATION RECEIVED (CONTINUED) |
|
(figures in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2006 Adjusted EBITDA with Addbacks |
|
|
| $ 20.5 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| Public Company Costs |
|
| $ | 2.0 |
|
|
| Public Company Costs |
|
| $ | 1.0 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
|
| |||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 22.5 |
|
|
| EBITDA |
|
| $ | 21.5 |
|
|
| EBITDA |
|
| $ | 20.5 |
|
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA | Implied |
| Paid to |
|
| EBITDA | Implied |
| Paid to |
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 5.7x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 6.0x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 6.3x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
| |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| 6.0x |
|
|
| $ | 1.45 |
|
|
| $ | 10.3 |
|
|
|
|
| 6.0x |
|
|
| $ | 1.27 |
|
|
| $ | 9.0 |
|
|
|
|
| 6.0x |
|
|
| $ | 1.09 |
|
|
| $ | 7.7 |
|
| |
|
|
|
| 6.5x |
|
|
| $ | 1.80 |
|
|
| $ | 12.7 |
|
|
|
|
| 6.5x |
|
|
| $ | 1.60 |
|
|
| $ | 11.3 |
|
|
|
|
| 6.5x |
|
|
| $ | 1.40 |
|
|
| $ | 9.9 |
|
| |
|
|
|
| 7.0x |
|
|
| $ | 2.14 |
|
|
| $ | 15.2 |
|
|
|
|
| 7.0x |
|
|
| $ | 1.93 |
|
|
| $ | 13.7 |
|
|
|
|
| 7.0x |
|
|
| $ | 1.71 |
|
|
| $ | 12.1 |
|
| |
|
|
|
| 7.5x |
|
|
| $ | 2.48 |
|
|
| $ | 17.6 |
|
|
|
|
| 7.5x |
|
|
| $ | 2.26 |
|
|
| $ | 16.0 |
|
|
|
|
| 7.5x |
|
|
| $ | 2.03 |
|
|
| $ | 14.4 |
|
| |
|
|
|
| 8.0x |
|
|
| $ | 2.83 |
|
|
| $ | 20.1 |
|
|
|
|
| 8.0x |
|
|
| $ | 2.58 |
|
|
| $ | 18.3 |
|
|
|
|
| 8.0x |
|
|
| $ | 2.34 |
|
|
| $ | 16.6 |
|
| |
|
|
|
| 8.5x |
|
|
| $ | 3.17 |
|
|
| $ | 22.5 |
|
|
|
|
| 8.5x |
|
|
| $ | 2.91 |
|
|
| $ | 20.7 |
|
|
|
|
| 8.5x |
|
|
| $ | 2.65 |
|
|
| $ | 18.8 |
|
| |
|
|
|
| 9.0x |
|
|
| $ | 3.51 |
|
|
| $ | 25.0 |
|
|
|
|
| 9.0x |
|
|
| $ | 3.24 |
|
|
| $ | 23.0 |
|
|
|
|
| 9.0x |
|
|
| $ | 2.96 |
|
|
| $ | 21.1 |
|
| |
|
|
|
| 9.5x |
|
|
| $ | 3.85 |
|
|
| $ | 27.5 |
|
|
|
|
| 9.5x |
|
|
| $ | 3.57 |
|
|
| $ | 25.4 |
|
|
|
|
| 9.5x |
|
|
| $ | 3.28 |
|
|
| $ | 23.3 |
|
| |
|
|
|
| 10.0x |
|
|
| $ | 4.20 |
|
|
| $ | 29.9 |
|
|
|
|
| 10.0x |
|
|
| $ | 3.89 |
|
|
| $ | 27.7 |
|
|
|
|
| 10.0x |
|
|
| $ | 3.59 |
|
|
| $ | 25.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
11
Confidential
Valuation Implications
|
PRICE PERSHAREMATRIX |
|
EBITDA and EBITDA Multiple Impact on Price per Share |
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assumed Level of EBITDA | |||||||||||||||||||||||||||||||||||||||
EBITDA | $ | 16.5 |
| $ | 17.0 |
| $ | 17.5 |
| $ | 18.0 |
| $ | 18.5 |
| $ | 19.0 |
| $ | 19.5 |
| $ | 20.0 |
| $ | 20.5 |
| $ | 21.0 |
| $ | 21.5 |
| $ | 22.0 |
| $ | 22.5 |
| |
|
| |||||||||||||||||||||||||||||||||||||||
6.0 | x | $ | 0.35 |
| $ | 0.45 |
| $ | 0.54 |
| $ | 0.63 |
| $ | 0.72 |
| $ | 0.81 |
| $ | 0.90 |
| $ | 1.00 |
| $ | 1.09 |
| $ | 1.18 |
| $ | 1.27 |
| $ | 1.36 |
| $ | 1.45 |
|
6.5 | x | $ | 0.61 |
| $ | 0.71 |
| $ | 0.80 |
| $ | 0.90 |
| $ | 1.00 |
| $ | 1.10 |
| $ | 1.20 |
| $ | 1.30 |
| $ | 1.40 |
| $ | 1.50 |
| $ | 1.60 |
| $ | 1.70 |
| $ | 1.80 |
|
7.0 | x | $ | 0.86 |
| $ | 0.97 |
| $ | 1.07 |
| $ | 1.18 |
| $ | 1.29 |
| $ | 1.39 |
| $ | 1.50 |
| $ | 1.61 |
| $ | 1.71 |
| $ | 1.82 |
| $ | 1.93 |
| $ | 2.04 |
| $ | 2.14 |
|
7.5 | x | $ | 1.11 |
| $ | 1.22 |
| $ | 1.34 |
| $ | 1.45 |
| $ | 1.57 |
| $ | 1.68 |
| $ | 1.80 |
| $ | 1.91 |
| $ | 2.03 |
| $ | 2.14 |
| $ | 2.26 |
| $ | 2.37 |
| $ | 2.48 |
|
8.0 | x | $ | 1.36 |
| $ | 1.48 |
| $ | 1.61 |
| $ | 1.73 |
| $ | 1.85 |
| $ | 1.97 |
| $ | 2.10 |
| $ | 2.22 |
| $ | 2.34 |
| $ | 2.46 |
| $ | 2.58 |
| $ | 2.71 |
| $ | 2.83 |
|
8.5 | x | $ | 1.61 |
| $ | 1.74 |
| $ | 1.87 |
| $ | 2.00 |
| $ | 2.13 |
| $ | 2.26 |
| $ | 2.39 |
| $ | 2.52 |
| $ | 2.65 |
| $ | 2.78 |
| $ | 2.91 |
| $ | 3.04 |
| $ | 3.17 |
|
9.0 | x | $ | 1.87 |
| $ | 2.00 |
| $ | 2.14 |
| $ | 2.28 |
| $ | 2.42 |
| $ | 2.55 |
| $ | 2.69 |
| $ | 2.83 |
| $ | 2.96 |
| $ | 3.10 |
| $ | 3.24 |
| $ | 3.38 |
| $ | 3.51 |
|
9.5 | x | $ | 2.12 |
| $ | 2.26 |
| $ | 2.41 |
| $ | 2.55 |
| $ | 2.70 |
| $ | 2.85 |
| $ | 2.99 |
| $ | 3.14 |
| $ | 3.28 |
| $ | 3.43 |
| $ | 3.57 |
| $ | 3.72 |
| $ | 3.85 |
|
10.0 | x | $ | 2.37 |
| $ | 2.52 |
| $ | 2.68 |
| $ | 2.83 |
| $ | 2.98 |
| $ | 3.14 |
| $ | 3.29 |
| $ | 3.44 |
| $ | 3.59 |
| $ | 3.75 |
| $ | 3.89 |
| $ | 4.05 |
| $ | 4.20 |
|
12
Confidential
Valuation Implications
|
PRICE PER SHARE MATRIX (CONTINUED) |
|
2005 Gross Profit Margin and EBITDA Multiple Impact on Price per Share1 |
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit Margin | ||||||||||||||||||||||||||||||||||||||
EBITDA |
| 37.9% |
|
| 38.2% |
|
| 38.4% |
|
| 38.7% |
|
| 38.9% |
|
| 39.2% |
|
| 39.4% |
|
| 39.7% |
|
| 39.9% |
|
| 40.2% |
|
| 40.4% |
|
| 40.7% |
|
| 40.9% |
| |
|
| |||||||||||||||||||||||||||||||||||||||
6.0 | x | $ | 1.29 |
| $ | 1.47 |
| $ | 1.66 |
| $ | 1.85 |
| $ | 2.03 |
| $ | 2.22 |
| $ | 2.41 |
| $ | 2.59 |
| $ | 2.78 |
| $ | 2.97 |
| $ | 3.15 |
| $ | 3.34 |
| $ | 3.53 |
|
6.5 | x | $ | 1.62 |
| $ | 1.82 |
| $ | 2.02 |
| $ | 2.22 |
| $ | 2.43 |
| $ | 2.63 |
| $ | 2.83 |
| $ | 3.03 |
| $ | 3.24 |
| $ | 3.44 |
| $ | 3.64 |
| $ | 3.84 |
| $ | 4.04 |
|
7.0 | x | $ | 1.95 |
| $ | 2.16 |
| $ | 2.38 |
| $ | 2.60 |
| $ | 2.82 |
| $ | 3.04 |
| $ | 3.25 |
| $ | 3.47 |
| $ | 3.69 |
| $ | 3.91 |
| $ | 4.13 |
| $ | 4.34 |
| $ | 4.56 |
|
7.5 | x | $ | 2.27 |
| $ | 2.51 |
| $ | 2.74 |
| $ | 2.98 |
| $ | 3.21 |
| $ | 3.44 |
| $ | 3.68 |
| $ | 3.91 |
| $ | 4.14 |
| $ | 4.38 |
| $ | 4.61 |
| $ | 4.84 |
| $ | 5.08 |
|
8.0 | x | $ | 2.60 |
| $ | 2.85 |
| $ | 3.10 |
| $ | 3.35 |
| $ | 3.60 |
| $ | 3.85 |
| $ | 4.10 |
| $ | 4.35 |
| $ | 4.60 |
| $ | 4.85 |
| $ | 5.10 |
| $ | 5.35 |
| $ | 5.59 |
|
8.5 | x | $ | 2.93 |
| $ | 3.20 |
| $ | 3.46 |
| $ | 3.73 |
| $ | 3.99 |
| $ | 4.26 |
| $ | 4.52 |
| $ | 4.79 |
| $ | 5.05 |
| $ | 5.32 |
| $ | 5.58 |
| $ | 5.85 |
| $ | 6.11 |
|
9.0 | x | $ | 3.26 |
| $ | 3.55 |
| $ | 3.83 |
| $ | 4.11 |
| $ | 4.39 |
| $ | 4.67 |
| $ | 4.95 |
| $ | 5.23 |
| $ | 5.51 |
| $ | 5.79 |
| $ | 6.07 |
| $ | 6.35 |
| $ | 6.63 |
|
9.5 | x | $ | 3.59 |
| $ | 3.89 |
| $ | 4.19 |
| $ | 4.48 |
| $ | 4.78 |
| $ | 5.07 |
| $ | 5.37 |
| $ | 5.67 |
| $ | 5.96 |
| $ | 6.26 |
| $ | 6.55 |
| $ | 6.85 |
| $ | 7.14 |
|
10.0 | x | $ | 3.92 |
| $ | 4.24 |
| $ | 4.55 |
| $ | 4.86 |
| $ | 5.17 |
| $ | 5.48 |
| $ | 5.79 |
| $ | 6.10 |
| $ | 6.42 |
| $ | 6.73 |
| $ | 7.04 |
| $ | 7.35 |
| $ | 7.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resulting |
| $ | 21.6 |
| $ | 22.6 |
| $ | 23.6 |
| $ | 24.6 |
| $ | 25.7 |
| $ | 26.7 |
| $ | 27.7 |
| $ | 28.7 |
| $ | 29.7 |
| $ | 30.8 |
| $ | 31.8 |
| $ | 32.8 |
| $ | 33.8 |
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
1 | Starting EBITDA in this illustration is $21.6 million, after adjustments of $0.8 million including public company costs of $2.0 million. Actual 2005 gross profit margin is 37.9%. |
13
Confidential
Valuation Implications
|
PRICE PER SHARE MATRIX (CONTINUED) |
|
2006 Gross Profit Margin and EBITDA Multiple Impact on Price per Share1 |
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit Margin | ||||||||||||||||||||||||||||||||||||||
EBITDA |
| 38.7% |
|
| 39.0% |
|
| 39.2% |
|
| 39.5% |
|
| 39.7% |
|
| 40.0% |
|
| 40.2% |
|
| 40.5% |
|
| 40.7% |
|
| 41.0% |
|
| 41.2% |
|
| 41.5% |
|
| 41.7% |
| |
|
| |||||||||||||||||||||||||||||||||||||||
6.0 | x | $ | 0.70 |
| $ | 0.90 |
| $ | 1.09 |
| $ | 1.29 |
| $ | 1.48 |
| $ | 1.68 |
| $ | 1.88 |
| $ | 2.07 |
| $ | 2.27 |
| $ | 2.47 |
| $ | 2.66 |
| $ | 2.86 |
| $ | 3.06 |
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6.5 | x | $ | 0.98 |
| $ | 1.19 |
| $ | 1.41 |
| $ | 1.62 |
| $ | 1.83 |
| $ | 2.04 |
| $ | 2.26 |
| $ | 2.47 |
| $ | 2.68 |
| $ | 2.89 |
| $ | 3.11 |
| $ | 3.32 |
| $ | 3.53 |
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7.0 | x | $ | 1.26 |
| $ | 1.49 |
| $ | 1.72 |
| $ | 1.95 |
| $ | 2.18 |
| $ | 2.41 |
| $ | 2.64 |
| $ | 2.86 |
| $ | 3.09 |
| $ | 3.32 |
| $ | 3.55 |
| $ | 3.78 |
| $ | 4.01 |
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7.5 | x | $ | 1.54 |
| $ | 1.79 |
| $ | 2.03 |
| $ | 2.28 |
| $ | 2.52 |
| $ | 2.77 |
| $ | 3.01 |
| $ | 3.26 |
| $ | 3.51 |
| $ | 3.75 |
| $ | 4.00 |
| $ | 4.24 |
| $ | 4.49 |
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8.0 | x | $ | 1.82 |
| $ | 2.08 |
| $ | 2.35 |
| $ | 2.61 |
| $ | 2.87 |
| $ | 3.13 |
| $ | 3.39 |
| $ | 3.66 |
| $ | 3.92 |
| $ | 4.18 |
| $ | 4.44 |
| $ | 4.70 |
| $ | 4.96 |
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8.5 | x | $ | 2.10 |
| $ | 2.38 |
| $ | 2.66 |
| $ | 2.94 |
| $ | 3.22 |
| $ | 3.49 |
| $ | 3.77 |
| $ | 4.05 |
| $ | 4.33 |
| $ | 4.61 |
| $ | 4.89 |
| $ | 5.16 |
| $ | 5.44 |
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9.0 | x | $ | 2.38 |
| $ | 2.68 |
| $ | 2.97 |
| $ | 3.27 |
| $ | 3.56 |
| $ | 3.86 |
| $ | 4.15 |
| $ | 4.45 |
| $ | 4.74 |
| $ | 5.04 |
| $ | 5.33 |
| $ | 5.62 |
| $ | 5.92 |
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9.5 | x | $ | 2.66 |
| $ | 2.98 |
| $ | 3.29 |
| $ | 3.60 |
| $ | 3.91 |
| $ | 4.22 |
| $ | 4.53 |
| $ | 4.84 |
| $ | 5.15 |
| $ | 5.46 |
| $ | 5.77 |
| $ | 6.09 |
| $ | 6.40 |
|
10.0 | x | $ | 2.94 |
| $ | 3.27 |
| $ | 3.60 |
| $ | 3.93 |
| $ | 4.26 |
| $ | 4.58 |
| $ | 4.91 |
| $ | 5.24 |
| $ | 5.56 |
| $ | 5.89 |
| $ | 6.22 |
| $ | 6.55 |
| $ | 6.87 |
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Resulting |
| $ | 18.4 |
| $ | 19.5 |
| $ | 20.5 |
| $ | 21.6 |
| $ | 22.7 |
| $ | 23.7 |
| $ | 24.8 |
| $ | 25.9 |
| $ | 26.9 |
| $ | 28.0 |
| $ | 29.1 |
| $ | 30.2 |
| $ | 31.2 |
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1 | Starting EBITDA in this illustration is $18.4 million, after adjustments of $2.7 million including public company costs of $2.0 million. Actual budgeted 2006 gross profit margin is 38.7%. |
14
Confidential
Valuation Implications
|
OBSERVED MULTIPLES |
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Observed Multiples |
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EBITDA Multiples |
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1 | Comparable companies include: Coldwater Creek, Charming Shoppes, Blyth, Alloy and J Jill. |
15
Confidential
Valuation Implications
|
COMPARABLE PUBLIC COMPANY DEBT-FREE MULTIPLES |
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(figures in millions) |
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| FYE |
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| NFY |
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| FYE |
| LTM |
| NFY |
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Tier 1: Direct Marketers in Apparel and Home Fashion |
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| Coldwater Creek Inc (2) |
| $ | 2,415.1 |
| 23.9x |
| 23.9x |
| 18.1x |
| Coldwater Creek Inc (2) |
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| 2,415.1 |
| 32.6x |
| 32.6x |
| 30.1x |
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| Charming Shoppes Inc(2) |
| $ | 2,077.7 |
| 8.4x |
| 8.4x |
| 7.8x |
| Charming Shoppes Inc(2) |
| $ | 2,077.7 |
| 13.4x |
| 13.4x |
| 11.6x |
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| Blyth Inc (3) |
| $ | 1,038.3 |
| 7.1x |
| 7.1x |
| NA |
| Blyth Inc (3) |
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| 1,038.3 |
| 9.4x |
| 9.4x |
| 9.9x |
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| J Jill Group Inc (2)(4) |
| $ | 251.7 |
| 7.1x |
| 9.9x |
| 8.4x |
| J Jill Group Inc (2)(4) |
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| 251.7 |
| 14.8x |
| NMF |
| 20.3x |
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| Delias Inc (5) |
| $ | 245.2 |
| NMF |
| NMF |
| NA |
| Delias Inc (5) |
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| 245.2 |
| NMF |
| NMF |
| NA |
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| Alloy Inc (2)(6) |
| $ | 187.7 |
| 11.1x |
| 11.1x |
| 9.2x |
| Alloy Inc (2)(6) |
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| 187.7 |
| 15.7x |
| 15.7x |
| 9.7x |
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| Blair Corp (7) |
| $ | 115.9 |
| 3.2x |
| 3.2x |
| NA |
| Blair Corp (7) |
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| 115.9 |
| 4.3x |
| 4.3x |
| NA |
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Tier 2: Direct Marketers in Other Consumer Products |
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| Cabelas Inc (2) |
| $ | 1,421.9 |
| 9.5x |
| 9.5x |
| 7.7x |
| Cabelas Inc (2) |
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| 1,421.9 |
| 12.4x |
| 12.4x |
| 10.6x |
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| Sportsmans Guide Inc (2) |
| $ | 204.1 |
| 10.4x |
| 10.4x |
| 9.0x |
| Sportsmans Guide Inc (2) |
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| 204.1 |
| 11.3x |
| 11.3x |
| 11.9x |
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| Petmed Express Inc (2) |
| $ | 144.1 |
| 11.1x |
| 8.1x |
| 7.9x |
| Petmed Express Inc (2) |
| $ | 144.1 |
| 11.6x |
| 8.3x |
| 8.1x |
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| Pc Mall Inc (3) |
| $ | 116.5 |
| NMF |
| NMF |
| NA |
| Pc Mall Inc (3) |
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| 116.5 |
| NMF |
| NMF |
| 9.2x |
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| Low |
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| 7.1x |
| 7.1x |
| 7.7x |
| Low |
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| 9.4x |
| 8.3x |
| 8.1x |
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| High |
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| 23.9x |
| 23.9x |
| 18.1x |
| High |
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| 32.6x |
| 32.6x |
| 30.1x |
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| Median |
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| 10.0x |
| 9.7x |
| 8.4x |
| Median |
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| 12.9x |
| 12.4x |
| 10.6x |
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| Mean |
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| 11.1x |
| 11.0x |
| 9.7x |
| Mean |
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| 15.1x |
| 14.7x |
| 13.5x |
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Tier 3: Home Fashion Retailers |
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| Bed Bath & Beyond Inc (2)(3) |
| $ | 11,492.6 |
| 11.6x |
| 11.6x |
| 10.7x |
| Bed Bath & Beyond Inc (2)(3) |
| $ | 11,492.6 |
| 13.1x |
| 13.1x |
| 11.9x |
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| Williams-Sonoma Inc (3) |
| $ | 4,619.5 |
| 9.6x |
| 9.6x |
| 9.0x |
| Williams-Sonoma Inc (3) |
| $ | 4,619.5 |
| 12.9x |
| 12.9x |
| 12.0x |
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Footnotes:
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(1) | EV is calculated based on market value of equity as of April 14, 2006, plus net debt. Revolver balance is based on the average balance in the last 4 quarters. |
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(2) | IBES consensus projections. |
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(3) | IBES consensus projections. No EBITDA projection available. |
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(4) | On November 18, 2006 Liz Claiborne offered $18.00 per share to acquire J Jill. On February 6, 2006 Talbots topped the offer to $24.05 per share. The Enterpise Value and LTM multiples of J Jill shown here are based on November 17, 2005 share price and financial results available as of that date. |
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(5) | No projections available. Delis is excluded from the multiple range due to the limited trading history. |
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(6) | FYE / LTM financial results based on press releases. |
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(7) | No projections available. Blair is excluded from the multiple range. |
16
|
|
Confidential |
Valuation Implications
|
RISK RANKING |
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Size |
| Size |
| Historical Growth |
| Historical Growth |
| Projected Growth | |||||||||||||||
(Revenue, millions) |
| (Enterprise Value, millions) (1) |
| (2-Year Revenue) |
| (1-Year Revenue) |
| (1-Year Revenue) | |||||||||||||||
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Charming Shoppes Inc | $ | 2,756 |
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| Coldwater Creek Inc | $ | 2,415 |
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| Coldwater Creek Inc |
| 23.3 | % |
| Coldwater Creek Inc |
| 33.5 | % |
| Coldwater Creek Inc |
| 25.9 | % |
Cabelas Inc | $ | 1,800 |
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| Charming Shoppes Inc | $ | 2,078 |
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| Sportsmans Guide Inc |
| 21.0 | % |
| Sportsmans Guide Inc |
| 22.7 | % |
| J Jill Group Inc |
| 15.7 | % |
Blyth Inc | $ | 1,573 |
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| Cabelas Inc | $ | 1,422 |
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| Delias Inc |
| 17.2 | % |
| Delias Inc |
| 19.8 | % |
| Cabelas Inc |
| 12.9 | % |
Pc Mall Inc | $ | 997 |
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| Blyth Inc | $ | 1,038 |
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| Cabelas Inc |
| 13.7 | % |
| Charming Shoppes Inc |
| 18.0 | % |
| Charming Shoppes Inc |
| 11.6 | % |
Coldwater Creek Inc | $ | 788 |
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| J Jill Group Inc | $ | 252 |
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| J Jill Group Inc |
| 11.9 | % |
| Cabelas Inc |
| 15.7 | % |
| Sportsmans Guide Inc |
| 8.5 | % |
Blair Corp | $ | 493 |
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| Delias Inc | $ | 245 |
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| Charming Shoppes Inc |
| 9.8 | % |
| J Jill Group Inc |
| 15.4 | % |
| Hanover Direct |
| 5.1 | % |
J Jill Group Inc | $ | 438 |
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| Sportsmans Guide Inc | $ | 204 |
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| Pc Mall Inc |
| 7.3 | % |
| Hanover Direct |
| 13.0 | % |
| Alloy Inc |
| 4.7 | % |
Hanover Direct | $ | 407 |
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| Alloy Inc | $ | 188 |
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| Hanover Direct |
| 4.9 | % |
| Pc Mall Inc |
| 1.9 | % |
| Blyth Inc |
| -0.7 | % |
Sportsmans Guide Inc | $ | 285 |
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| Blair Corp | $ | 116 |
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| Blyth Inc |
| 2.2 | % |
| Blyth Inc |
| -0.8 | % |
| Pc Mall Inc |
| -2.1 | % |
Delias Inc | $ | 219 |
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| Pc Mall Inc | $ | 116 |
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| Blair Corp |
| -11.1 | % |
| Blair Corp |
| -8.9 | % |
| Delias Inc |
| NA |
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Alloy Inc | $ | 195 |
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| Alloy Inc |
| NA |
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| Alloy Inc |
| NA |
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| Blair Corp |
| NA |
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Historical Growth |
| Historical Growth |
| Projected Growth |
| Projected Growth |
| Profitability | |||||||||||||||
(2-Year EBITDA) |
| (1-Year EBITDA) |
| (1-Year EBITDA) |
| (5-Year EPS) |
| (EBIT to Revenue) | |||||||||||||||
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Coldwater Creek Inc |
| 64.8 | % |
| Alloy Inc |
| 419.6 | % |
| Coldwater Creek Inc |
| 32.0 | % |
| Pc Mall Inc |
| 30.0 | % |
| Coldwater Creek Inc |
| 9.4 | % |
Hanover Direct |
| 39.6 | % |
| Coldwater Creek Inc |
| 50.1 | % |
| Cabelas Inc |
| 23.0 | % |
| Charming Shoppes Inc |
| 24.0 | % |
| Blyth Inc |
| 7.0 | % |
Sportsmans Guide Inc |
| 33.4 | % |
| Sportsmans Guide Inc |
| 36.7 | % |
| Alloy Inc |
| 20.5 | % |
| Sportsmans Guide Inc |
| 20.0 | % |
| Cabelas Inc |
| 6.4 | % |
Charming Shoppes Inc |
| 23.7 | % |
| Charming Shoppes Inc |
| 26.2 | % |
| Sportsmans Guide Inc |
| 15.7 | % |
| Cabelas Inc |
| 15.0 | % |
| Sportsmans Guide Inc |
| 6.3 | % |
Cabelas Inc |
| 15.8 | % |
| J Jill Group Inc |
| 25.7 | % |
| Charming Shoppes Inc |
| 7.5 | % |
| Alloy Inc |
| NA |
|
| Alloy Inc |
| 6.1 | % |
Blair Corp |
| 6.0 | % |
| Cabelas Inc |
| 17.8 | % |
| Hanover Direct |
| -14.8 | % |
| Blair Corp |
| NA |
|
| Charming Shoppes Inc |
| 5.6 | % |
J Jill Group Inc |
| -11.5 | % |
| Hanover Direct |
| 10.4 | % |
| J Jill Group Inc |
| -15.6 | % |
| Coldwater Creek Inc |
| NA |
|
| Blair Corp |
| 5.4 | % |
Blyth Inc |
| -18.0 | % |
| Blair Corp |
| 7.3 | % |
| Delias Inc |
| NMF |
|
| J Jill Group Inc |
| NA |
|
| Hanover Direct |
| 3.9 | % |
Pc Mall Inc |
| -34.5 | % |
| Blyth Inc |
| -28.2 | % |
| Pc Mall Inc |
| NA |
|
| Delias Inc |
| NA |
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| J Jill Group Inc |
| 0.9 | % |
Delias Inc |
| NMF |
|
| Pc Mall Inc |
| -63.8 | % |
| Blair Corp |
| NA |
|
| Hanover Direct |
| NA |
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| Pc Mall Inc |
| 0.0 | % |
Alloy Inc |
| NA |
|
| Delias Inc |
| NMF |
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| Blyth Inc |
| NA |
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| Blyth Inc |
| NA |
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| Delias Inc |
| -0.5 | % |
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| Internal Investment |
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Profitability |
| Relative Depreciation |
| (Capital Expenditures |
| Liquidity |
| Leverage | |||||||||||||||
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Coldwater Creek Inc |
| 12.8 | % |
| Delias Inc |
| 124.5 | % |
| Cabelas Inc |
| 10.8 | % |
| Blyth Inc |
| 2.8 |
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| Coldwater Creek Inc |
| 0.0x |
|
Blyth Inc |
| 9.3 | % |
| Pc Mall Inc |
| 101.2 | % |
| Coldwater Creek Inc |
| 10.3 | % |
| J Jill Group Inc |
| 2.4 |
|
| Blyth Inc |
| 0.0x |
|
Charming Shoppes Inc |
| 8.9 | % |
| J Jill Group Inc |
| 85.2 | % |
| J Jill Group Inc |
| 8.2 | % |
| Blair Corp |
| 2.3 |
|
| Charming Shoppes Inc |
| 0.0x |
|
Alloy Inc |
| 8.7 | % |
| Alloy Inc |
| 46.9 | % |
| Delias Inc |
| 4.6 | % |
| Alloy Inc |
| 2.0 |
|
| Sportsmans Guide Inc |
| 0.0x |
|
Cabelas Inc |
| 8.3 | % |
| Charming Shoppes Inc |
| 37.0 | % |
| Charming Shoppes Inc |
| 3.8 | % |
| Coldwater Creek Inc |
| 2.0 |
|
| Blair Corp |
| 0.0x |
|
Blair Corp |
| 7.4 | % |
| Blair Corp |
| 27.1 | % |
| Blair Corp |
| 1.6 | % |
| Charming Shoppes Inc |
| 1.8 |
|
| J Jill Group Inc |
| 0.4x |
|
Sportsmans Guide Inc |
| 6.9 | % |
| Coldwater Creek Inc |
| 26.7 | % |
| Alloy Inc |
| 1.4 | % |
| Hanover Direct |
| 1.4 |
|
| Cabelas Inc |
| 1.2x |
|
J Jill Group Inc |
| 5.8 | % |
| Blyth Inc |
| 24.6 | % |
| Blyth Inc |
| 1.1 | % |
| Cabelas Inc |
| 1.3 |
|
| Hanover |
| 1.4x |
|
Hanover Direct |
| 4.8 | % |
| Cabelas Inc |
| 23.3 | % |
| Hanover Direct |
| 0.4 | % |
| Pc Mall Inc |
| 1.2 |
|
| Delias Inc |
| 2.4x |
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Delias Inc |
| 1.9 | % |
| Hanover Direct |
| 18.8 | % |
| Sportsmans Guide Inc |
| 0.3 | % |
| Sportsmans Guide Inc |
| 1.2 |
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| Alloy Inc |
| 4.4x |
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| Sportsmans Guide Inc |
| 7.5 | % |
| Pc Mall Inc |
| 0.3 | % |
| Delias Inc |
| 0.9 |
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| Pc Mall Inc |
| 11.3x |
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(1) | EV is calcuated based on market value of equity, plus the net debt. Revolver balance is based on the average balance in the last 4 quarters. |
17
|
|
Confidential |
Valuation Implications
|
COMPARABLE TRANSACTION SUMMARY1 |
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(figures in millions) |
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|
|
|
| LTM Enterprise Value Multiples |
|
|
|
| Premium |
| ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Announced |
| Effective |
| Target |
| Target Industry |
| Acquiror |
| EV |
| Revenue |
| EBITDA |
| EBIT |
| EBITDA |
| 1 Day |
| 5 Days |
| 20 Days |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
2/5/2006 |
| Pending |
| J Jill Group Inc. |
| Catalog Retail |
| Talbots |
|
| $ | 505.7 |
|
|
|
| 1.16 | x |
|
|
| 14.9 | x |
|
|
| 33.0 | x |
|
|
| 7.8 | % |
|
|
| 24.6 | % |
|
|
| 23.8 | % |
|
|
| 24.9 | % |
|
12/4/2005 |
| 2/9/2006 |
| Provide Commerce |
| Internet Retail |
| Liberty Media Group |
|
| $ | 400.7 |
|
|
|
| 2.18 | x |
|
|
| 23.5 | x |
|
|
| 28.5 | x |
|
|
| 9.6 | % |
|
|
| 16.6 | % |
|
|
| 16.5 | % |
|
|
| 45.1 | % |
|
12/1/2005 |
| 12/1/2005 |
| SkyMall Inc. |
| Catalog Retail |
| Spire Capital Partners Consortium |
|
| $ | 52.0 |
|
|
|
| 1.10 | x |
|
|
| NA |
|
|
|
| 7.4 | x |
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
5/19/2005 |
| 6/2/2005 |
| Crosstown Traders |
| Internet Retail |
| Charming Shoppes Inc. |
|
| $ | 258.7 |
|
|
|
| 0.56 | x |
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
3/1/2005 |
| 4/1/2005 |
| Cornerstone Brands, Inc. |
| Catalog Retail |
| IAC/InterActive Corp. |
|
| $ | 715.0 |
|
|
|
| 1.00 | x |
|
|
| 10.8 | x |
|
|
| 12.1 | x |
|
|
| 9.2 | % |
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
6/29/2004 |
| 6/29/2004 |
| Golf Warehouse, The |
| Internet Retail |
| Sportman’s Guide Inc. |
|
| $ | 30.0 |
|
|
|
| 0.66 | x |
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
7/31/2003 |
| 9/3/2003 |
| dELiA*s |
| Catalog Retail |
| Alloy Inc. |
|
| $ | 51.7 |
|
|
|
| 0.37 | x |
|
|
| NMF |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
4/16/2003 |
| 7/3/2003 |
| Lillian Vernon Corp. |
| Catalog Retail |
| Ripplewood Holdings LLC |
|
| $ | 40.1 |
|
|
|
| 0.17 | x |
|
|
| NMF |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
| 72.6 | % |
|
|
| 74.7 | % |
|
|
| 71.0 | % |
|
3/10/2003 |
| 4/2/2003 |
| Miles Kimball Company |
| Catalog Retail |
| Blyth, Inc. |
|
| $ | 65.0 |
|
|
|
| 0.54 | x |
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
|
| NA |
|
|
5/13/2002 |
| 6/17/2002 |
| Land’s End |
| Catalog Retail |
| Sears Roebuck & Co. |
|
| $ | 1,793.7 |
|
|
|
| 1.12 | x |
|
|
| 11.2 | x |
|
|
| 13.8 | x |
|
|
| 9.1 | % |
|
|
| 21.5 | % |
|
|
| 23.2 | % |
|
|
| 27.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Low |
|
|
|
|
|
|
|
|
|
| $ | 30.0 |
|
|
|
| 0.17 | x |
|
|
| 10.8 | x |
|
|
| 7.4 | x |
|
|
| 7.8 | % |
|
|
| 16.6 | % |
|
|
| 16.5 | % |
|
|
| 24.9 | % |
|
High |
|
|
|
|
|
|
|
|
|
| $ | 1,793.7 |
|
|
|
| 2.18 | x |
|
|
| 23.5 | x |
|
|
| 33.0 | x |
|
|
| 9.6 | % |
|
|
| 72.6 | % |
|
|
| 74.7 | % |
|
|
| 71.0 | % |
|
Median |
|
|
|
|
|
|
|
|
|
| $ | 161.9 |
|
|
|
| 0.83 | x |
|
|
| 13.0 | x |
|
|
| 13.8 | x |
|
|
| 9.2 | % |
|
|
| 23.1 | % |
|
|
| 23.5 | % |
|
|
| 36.5 | % |
|
Mean |
|
|
|
|
|
|
|
|
|
| $ | 391.3 |
|
|
|
| 0.89 | x |
|
|
| 15.1 | x |
|
|
| 18.9 | x |
|
|
| 8.9 | % |
|
|
| 33.8 | % |
|
|
| 34.6 | % |
|
|
| 42.2 | % |
|
|
|
|
• | The above transactions generally reflect acquisition of companies with better margins and more scale than Hanover. Therefore, comparability may not be appropriate. |
|
|
1 | Transactions with announcement dates between 2002 – 2006 for which purchase price multiples were available were considered. Sources included Securities Data Company, Mergerstat, and public filings. |
18
Confidential
Valuation Implications
|
ACQUISITION PREMIUM ANALYSIS |
|
Acquisition Premium Analysis1 |
|
Premium |
|
|
|
1 | Based on 13e3 transactions filings with SEC for the period of 2004 – 2006, and 2002 – 2006 comparable M&A transactions. |
|
|
19 | |
| |
Confidential |
Valuation Implications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUISITIONPREMIUMANALYSIS(CONTINUED) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13e3 Transaction Premium Analysis 2004-2006 | |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
|
| Median Value of |
| Median Offer Price |
|
|
| Median Premium |
| ||||||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
|
|
|
|
| 1-Day |
| 5-Day |
| 20-Day |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall |
|
| $ | 3.6 |
|
|
| $ | 8.94 |
|
|
|
|
|
|
|
|
| 14.9 | % |
|
|
| 15.2 | % |
|
|
| 16.5 | % |
|
2006 |
|
| $ | 299.5 |
|
|
| $ | 20.10 |
|
|
|
|
|
|
|
|
| 13.0 | % |
|
|
| 14.2 | % |
|
|
| 15.3 | % |
|
2005 |
|
| $ | 2.2 |
|
|
| $ | 9.50 |
|
|
|
|
|
|
|
|
| 20.8 | % |
|
|
| 22.8 | % |
|
|
| 19.9 | % |
|
2004 |
|
| $ | 5.1 |
|
|
| $ | 7.00 |
|
|
|
|
|
|
|
|
| 12.8 | % |
|
|
| 13.2 | % |
|
|
| 13.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1-Day High |
| 1-Day Low |
| 5-Day High |
| 5-Day Low |
| 20-Day High |
| 20-Day Low |
| ||||||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall |
|
|
| 160.0 | % |
|
|
| (72.6 | %) |
|
|
| 137.4 | % |
|
|
| (75.0 | %) |
|
|
| 205.4 | % |
|
|
| (74.9 | %) |
|
2006 |
|
|
| 115.4 | % |
|
|
| (1.1 | %) |
|
|
| 76.6 | % |
|
|
| 0.1 | % |
|
|
| 82.8 | % |
|
|
| 0.2 | % |
|
2005 |
|
|
| 160.0 | % |
|
|
| (43.2 | %) |
|
|
| 137.4 | % |
|
|
| (41.7 | %) |
|
|
| 154.4 | % |
|
|
| (44.1 | %) |
|
2004 |
|
|
| 137.0 | % |
|
|
| (72.6 | %) |
|
|
| 137.0 | % |
|
|
| (75.0 | %) |
|
|
| 205.4 | % |
|
|
| (74.9 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Transactions |
|
|
| 177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Transactions with Disclosed Detail |
|
|
| 169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| |||||||||||||||||||||||||||||||
20
Confidential
Valuation Implications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUISITIONPREMIUMANALYSIS(CONTINUED) | |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
13e3 Transaction Premium Analysis 2004-2006 (by Size) | |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
Transaction |
|
|
|
|
|
|
| Median Premium |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
| 1-Day |
| 5-Day |
| 20-Day |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Under $10MM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16.9 | % |
|
|
| 15.4 | % |
|
|
| 16.5 | % |
|
$10 - $100MM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15.1 | % |
|
|
| 14.2 | % |
|
|
| 13.8 | % |
|
Over $100MM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13.3 | % |
|
|
| 13.1 | % |
|
|
| 16.5 | % |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14.9 | % |
|
|
| 15.2 | % |
|
|
| 16.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1-Day High |
| 1-Day Low |
| 5-Day High |
| 5-Day Low |
| 20-Day High |
| 20-Day Low |
| ||||||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Under $10MM |
|
|
| 160.0 | % |
|
|
| (72.6 | %) |
|
|
| 137.4 | % |
|
|
| (75.0 | %) |
|
|
| 205.4 | % |
|
|
| (74.9 | %) |
|
$10 - $100MM |
|
|
| 111.8 | % |
|
|
| (1.1 | %) |
|
|
| 116.9 | % |
|
|
| (1.7 | %) |
|
|
| 154.4 | % |
|
|
| (7.8 | %) |
|
Over $100MM |
|
|
| 58.4 | % |
|
|
| (0.6 | %) |
|
|
| 57.4 | % |
|
|
| 0.1 | % |
|
|
| 46.7 | % |
|
|
| (0.9 | %) |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
TOTAL |
|
|
| 160.0 | % |
|
|
| (72.6 | %) |
|
|
| 137.4 | % |
|
|
| (75.0 | %) |
|
|
| 205.4 | % |
|
|
| (74.9 | %) |
|
| |||||||||||||||||||||||||||||||
21
Confidential
|
|
| |
Valuation Implications |
|
PREMIUM/ DISCOUNTANALYSIS |
|
|
|
|
|
|
|
|
Chelsey Offer Price |
|
|
| $1.25 |
| ||
|
|
|
|
|
|
|
|
Trading |
| Closing |
| Premium/ |
| ||
|
|
| |||||
| |||||||
1 Day |
| $2.55 |
| -51.0% |
| ||
|
|
|
|
|
|
|
|
5 Day |
| $2.80 |
| -55.4% |
| ||
|
|
|
|
|
|
|
|
1 Month |
| $2.46 |
| -49.2% |
|
|
Stock Price Pre Announcement1 |
Price
|
|
|
|
|
1 | Based on Pre Announcement date 2/24/2006. Houlihan Lokey is not indicating that the Pre Announcement price reflects fair value due to the lack of sufficient trading level in Hanover’s stock. |
22
Confidential
|
Valuation Implications |
|
PREMIUM/ DISCOUNTANALYSIS (CONTINUED) |
|
|
|
|
|
|
|
|
Chelsey Offer Price |
|
|
| $1.25 |
| ||
|
|
|
|
|
|
|
|
Trading |
| Average Closing |
| Premium/ |
| ||
|
|
| |||||
| |||||||
1 Day |
| $2.55 |
| -51.0% |
| ||
|
|
|
|
|
|
|
|
5 Day |
| $2.65 |
| -52.9% |
| ||
|
|
|
|
|
|
|
|
1 Month |
| $2.71 |
| -53.9% |
| ||
|
|
|
|
|
|
|
|
3 Month |
| $1.93 |
| -35.3% |
| ||
|
|
|
|
|
|
|
|
6 Month |
| $1.54 |
| -18.7% |
| ||
|
|
|
|
|
|
|
|
1 Year |
| $1.23 |
| 1.8% |
|
|
Average Stock Price1 |
Price
|
|
|
|
|
1 | Based on Pre Announcement date 2/24/2006. Houlihan Lokey is not indicating that the Pre Announcement price reflects fair value due to the lack of sufficient trading level in Hanover’s stock. |
23
Confidential
|
|
Valuation Implications | |
|
|
STOCKPRICEDISTRIBUTION | |
|
|
Stock Price Distribution Pre Announcement1(Days) | |
|
|
|
|
|
1 | For the 12 months period of 2/25/05-2/24/06. |
24
Confidential
|
|
Valuation Implications | |
|
|
STOCKPRICEDISTRIBUTION(CONTINUED) | |
|
|
Stock Price Distribution Pre Announcement1(Volume) | |
|
|
|
|
|
1 | For the 12 month period of 2/25/05-2/24/06. |
25
Confidential
|
|
Valuation Implications | |
|
|
PREFERREDSTOCKVALUE | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chelsey Preferred Stock Value |
| |||||||||||||||
| ||||||||||||||||
(figures in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Liquidation Preference(1) |
|
|
|
|
|
|
| $ | 56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIK Dividend Rate |
|
| 1/1/2006 |
|
| 7.0 | % |
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2007 |
|
| 8.5 | % |
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2008 |
|
| 10.0 | % |
|
|
|
|
|
|
|
|
|
Mandatory Redemption |
|
| 1/1/2009 |
|
|
| $ | 72.9 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required Yield(2) |
|
|
|
|
|
| 12.0 | % |
| — |
|
| 8.0 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Value |
|
|
|
|
|
|
| $ | 50.9 |
|
| — |
| $ | 57.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Common Value Accretion |
|
|
|
|
|
|
| $ | 0.20 |
|
| — |
|
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | As of 3/31/06 Preferred Stock liquidation preference, plus accrued dividends is $57.5 million. |
| |
2 | Required yield assumption based on synthetic credit rating analysis. |
26
Confidential
|
| |
Valuation Implications | ||
|
| |
LEVERAGE | ||
|
|
|
• | The Company currently has a LTM leverage ratio of 1.4x1. | |
|
|
|
• | Given the current credit environment, the Company potentially has additional debt capacity: | |
|
|
|
LBO Statistics2 | ||
|
|
|
|
|
1 | Based on total debt of $30.5 million and EBITDA of $19.6 million (without public company costs addback). |
| |
2 | Standard & Poor’s Q4 2005 Leveraged Buyout Review |
| |
3 | Excludes amortization of debt discount, based on 2005 cash interest of $4.3 million. |
27
Confidential
Valuation Implications
|
LEVERAGE (CONTINUED) |
| |
• | Chelsey could potentially buyout all of the minority stockholders without contributing any equity, by accessing into Hanover’s existing debt capacity: |
|
|
|
|
|
Potential Debt Transaction1 | ||||
| ||||
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
2005 Adjusted EBITDA with addbacks |
| $ | 21.6 |
|
Assumed Leverage Ratio |
|
| 4.0 | x |
|
| |||
Total Debt Assumed |
| $ | 86.3 |
|
Less: Wachovia Maximum Revolver Limit |
|
| (34.5 | ) |
Less: Wachovia Term Loan Outstanding |
|
| (2.5 | ) |
Less: Chelsey Loan |
|
| (20.0 | ) |
|
| |||
Residual Proceeds |
| $ | 29.3 |
|
|
|
|
|
|
Number of Public Shares(2) |
|
| 7.1 |
|
|
|
|
|
|
Implied Price Per Share |
| $ | 4.16 |
|
|
|
|
| |
| |||
1 | In this scenario, we assume Chelsey’s Preferred Stock remains outstanding. |
| |
| |||
2 | Includes in-the-money options (excludes Chelsey’s) based on treasury method. |
28
Confidential
Valuation Implications
|
REALESTATE |
|
| |
• | The Company has the following properties which are substantially mortgage free: | |
|
|
|
| • | A 775,000 sq. ft. warehouse and fulfillment facility in Roanoke, Virginia |
|
|
|
| • | A 48,000 sq. ft. administrative and telemarketing facility located in LaCrosse, Wisconsin |
|
|
|
| • | A 150,000 sq. ft. home fashion manufacturing facility located in LaCrosse, Wisconsin |
|
|
|
• | According to an appraisal report as of May 19, 2003, real estate value was $40.5 million. | |
|
|
|
| • | An updated appraisal report will provide a better picture of any hidden real estate value. |
|
|
|
• | The Company may be able to refinance its loan due to Chelsey1 with commercial mortgage loan, potentially lowering its interest expenses. |
|
|
| |
| |||
1 | Chelsey Loan is at Prime + 5%. |
|
29
Confidential
Valuation Implications
|
REAL ESTATE (CONTINUED) |
|
|
• | Potential sale leaseback transaction may result in the following: |
|
|
|
|
|
|
|
|
Potential Sale Leaseback Transaction Impact1 | |||||||
| |||||||
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Transaction Amount(2) |
| $ | 20.0 |
|
|
|
|
Assumed Capitalization Rate |
|
| 8 | % |
|
|
|
Net Lease Payment |
| $ | 1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pre |
| Post |
| ||
|
|
| |||||
2005 Adjusted EBITDA with addbacks |
| $ | 21.6 |
| $ | 20.0 |
|
|
|
|
|
|
|
|
|
EV(assumed EBITDA Multiple @ 8.0x) |
| $ | 172.7 |
| $ | 159.9 |
|
Less: Net Debt(3) |
|
| (30.0 | ) |
| (10.0 | ) |
Less: Preferred Stock(4) |
|
| (57.5 | ) |
| (57.5 | ) |
|
|
| |||||
Equity Value |
| $ | 85.2 |
| $ | 92.4 |
|
|
|
|
|
|
|
|
|
Shares Outstanding(5) |
|
| 32.7 |
|
| 32.7 |
|
| |||||||
Price per Share |
| $ | 2.61 | — | $ | 2.83 |
|
| |||||||
Increase in Price |
|
|
|
|
| 8.4 | % |
|
|
|
|
|
| |
1 | Assumes sale leaseback proceeds are utilized to repay debt, subject to existing lenders’ approval. | |
|
| |
2 | Based on indication from W.P.Carey in 2003. | |
|
| |
3 | In calculating Net Debt, average Revolver balance for the past four quarters is used. | |
|
| |
4 | As of 3/31/06 Preferred Stock liquidation preference, plus accrued dividends is $57.5 million. | |
|
| |
5 | Includes in-the-money options based on treasury method. |
30
Confidential
Valuation Implications
|
|
SUMMARY OFVALUATIONIMPLICATIONS | |
|
|
• | The range of EBITDA multiples |
|
|
• | The adjusted EBITDA level (including public company costs and other potential add-backs) |
|
|
• | The value of the Series C Preferred Stock |
|
|
• | Debt capacity may be under utilized |
|
|
• | Hidden real estate value, if any |
|
|
• | Status quo implications |
31
Confidential
|
Confidential
Deal Structure
|
STRUCTURAL POINTS |
|
|
|
|
|
|
Issues |
| Considerations | ||
• | Clarity on Proposed Transaction |
| • | Long form merger; or tender offer followed by short form merger? |
• | Offer Price |
| • | Initial bid is apparently too low. The market has run past the Offer Price |
• | Re:Pure Resources |
| • | Offer Subject to majority of the minority (total unaffiliated shareholders or majority of the votes?) |
In this precedent court case, the framework has been established to allow tender offer to be non-coercive |
|
|
| |
| • | Binding agreement to consummate short form merger if greater than 90% achieved (assuming no orphans left) | ||
• | Assurance of ability to consummate |
| • | Availability of third party financing |
|
|
| • | Ability of Chelsey to complete Transaction without a third party |
33
Confidential
|
Stock Chart
|
HISTORICAL PRICE VOLUME PERFORMANCE |
|
|
Hanover Direct Inc. | Last: $1.45 |
30-Sep-2004 to 10-Apr-2006 | High: $3.00 |
Prices in USD; Volume in millions | Low: $0.25 |
|
|
(1) | Hanover Announces the Filing of a Form 12b-25 Notification of Late Filing With the SEC |
| |
(2) | Hanover Announces Notice of Potential Delisting From American Stock Exchange |
| |
(3) | Basil Regan sells approximately 3.8 million shares to Chelsey at $1 per share in a private transaction |
| |
(4) | Hanover Announces Notice of Delisting From American Stock Exchange |
| |
(5) | Hanover Announces Conclusion of Independent Investigation Regarding Restatements, Resignation of Chief Financial Officer |
| |
(6) | Hanover Announces Favorable Outcomes in Three Litigations |
| |
(7) | Hanover Replaces KPMG LLP with Goldstein Golub & Kessler LLP as its Principal Independent Auditors |
| |
(8) | Hanover Reports Preliminary Results for the Fourth Quarter and Guidance for the Fiscal Year Ended December 31, 2005 |
| |
(9) | Hanover Receives Going Private Proposal |
| |
(10) | Hanover Files Fiscal Year End 2005 10-K |
35
|
|
MAY 5, 2006 | Hanover Direct, Inc. |
Draft/Confidential | Updated Discussion Materials with |
Houlihan Lokey Howard & Zukin
245 Park Avenue
New York, NY 10167
212-497-4100
www.hlhz.com
New York Los Angeles Chicago San Francisco Washington D.C. Minneapolis Dallas Atlanta London Paris Frankfurt
|
Table of Contents |
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| Tab |
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| |
| ||
| 1 | |
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| 2 | |
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| 3 | |
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| 4 | |
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|
|
| 5 |
i
Draft/Confidential
Process
|
|
SUMMARY OF DUE DILIGENCE PERFORMED | |
| |
In preparing our preliminary findings, we have: | |
| |
• | Reviewed historical financial information |
|
|
• | Reviewed the 2006 internal financial budget for the Company prepared by management |
|
|
• | Reviewed the 2006 first quarter financial results of the Company prepared by management |
|
|
• | Reviewed various operational and financial analyses prepared by management |
|
|
• | Held various meetings and discussions with members of the senior management of the Company (Wayne Garten, John Swatek, Charlie Pellenberg, Neil Mulhall) regarding their assessment of the past and current business operations, financial condition and future prospects (2006) of the Company |
|
|
• | Reviewed the reported price and trading activity for the common stock of the Company |
|
|
• | Compared financial and stock market information for the Company with similar information with respect to the securities of other publicly traded companies |
|
|
• | Reviewed the financial terms of recent business combinations in the catalog/internet retail industry |
|
|
• | Reviewed selected going private transactions |
|
|
• | Reviewed the rights and privileges of the Company’s Series C Preferred Stock |
|
|
• | Reviewed preferred stock yields for companies with similar credit statistics as Hanover |
1
Draft/Confidential
Draft/Confidential
|
Financial Performance and Projections |
|
|
• | After the disappointing FY 2003, Hanover has experienced healthier revenue growth and profitability in FY 2004 and FY 2005. |
$ in Millions
$ in Millions
|
|
|
|
|
|
1 | EBITDA and EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings addback. Source: Form 10-K and Management. |
3
Draft/Confidential
Financial Performance and Projections
|
|
• | Although lower than 2005, the 2006 first quarter results exceeded budget. |
$ in Millions
$ in Millions
|
|
|
|
|
|
|
|
1 | EBITDA and EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings addback. |
4
Draft/Confidential
Financial Performance and Projections
|
|
|
2006 BUDGET | ||
|
|
|
• | The Company has not prepared projections beyond its 2006 budget. | |
|
|
|
• | 2006 budget has yet to be approved by the Board of Directors. | |
|
|
|
• | The Company projects a decline in EBITDA for 2006. The EBITDA margin1 for 2005 was 4.6% and is budgeted to decrease to 3.8% for 2006. Management has indicated that there are several reasons for such a decline: | |
|
|
|
| • | Global Sourcing Initiatives: To lower merchandising costs and improve product mix, Hanover plans to hire additional personnel in the U.S. to source from the Far East. As a result, the travel and entertainment expenses are projected to increase by approximately $0.69 million. |
|
|
|
| • | E-Commerce Capability: Hanover’s Internet sales have experienced a much higher growth rate than the traditional mail order catalog (23.9% vs. 2.0% in FY 2005). The Company plans to invest more resources to enhance its e-commerce platform. |
|
|
|
| • | Additional Headcount: Hanover has projected to add headcount in the Human Resources and Finance functions. Overall, the Company will incur an additional $2.23 million in payroll and $0.79 million in fringe benefits. |
|
|
|
| • | Paper, Printing and Postage: The Company projected an increase of $7.6 million in Catalog/Advertising cost attributed mainly to increase in paper and printing costs, as well as to the USPS postage. |
|
|
|
|
|
1 | EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings add-back. Source: Form 10-K and Management. |
5
Draft/Confidential
Financial Performance and Projections
|
| |
2006 BUDGET(CONTINUED) | ||
|
|
|
• | Below is a list of costs that may be adjusted either because of their one-time nature, or the expenses will bring long term benefits to the Company: |
|
|
|
|
|
|
| |||||
Potential Adjustments in 2006 |
|
|
|
| |
| |||||
(figures in millions) |
|
|
|
| |
|
|
|
|
| |
| Information Systems |
| $ | 0.4 |
|
| Global Sourcing Related Increase |
| $ | 0.7 |
|
| Increase in Payroll (excl. reclass) |
| $ | 2.2 |
|
| Increase in Fringe |
| $ | 0.8 |
|
| Restructuring Special Charges |
| $ | 0.7 |
|
| Compensation Related to Stock Options |
| $ | 0.1 |
|
|
|
| |||
|
|
| $ | 4.9 |
|
| |||||
|
|
|
| • | Information Systems: consists of increase in payroll and fringe benefits for additional positions. |
|
| |
| • | Global Sourcing: incremental travel and entertainment expenses related to the Global Sourcing Initiatives discussed |
|
| |
| • | Fringe and Payroll: increase headcount in Human Resources, Finance and E-Commerce departments. |
6
Draft/Confidential
Financial Performance and Projections
|
PUBLIC COMPANY COST SAVINGS |
|
|
|
• | The current costs of being a public company are $1.8 million. Management believes these costs could be reduced to $1.2 million if the Company goes private. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Public Company Cost Savings |
| ||||||||||||||
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||
($ in millions) |
|
|
|
|
|
|
|
|
| ||||||
| |||||||||||||||
|
| Public |
|
| Private |
|
|
|
| Savings |
|
| |||
|
|
|
|
|
|
|
|
|
| ||||||
Directors Fees |
| $ | 0.3 |
|
| $ | 0.2 |
|
| (1) |
| ($ | 0.2 | ) |
|
D&O Insurance |
| $ | 0.4 |
|
| $ | 0.4 |
|
| (2) |
| $ | 0.0 |
|
|
Listing Fees and Transfer Fees |
| $ | 0.1 |
|
| $ | 0.0 |
|
|
|
| ($ | 0.1 | ) |
|
Press Release/Investor Relations/Proxy |
| $ | 0.1 |
|
| $ | 0.1 |
|
| (3) |
| ($ | 0.1 | ) |
|
Legal Fees - SEC Compliance External Counsel |
| $ | 0.1 |
|
| $ | 0.0 |
|
|
|
| ($ | 0.1 | ) |
|
Audit Fees |
| $ | 0.4 |
|
| $ | 0.3 |
|
| (4) |
| ($ | 0.1 | ) |
|
Internal Legal Costs |
| $ | 0.2 |
|
| $ | 0.1 |
|
| (5) |
| ($ | 0.1 | ) |
|
Internal Accounting Costs |
| $ | 0.2 |
|
| $ | 0.2 |
|
| (6) |
| $ | 0.0 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Costs |
| $ | 1.8 |
|
| $ | 1.2 |
|
|
|
| ($ | 0.6 | ) |
|
|
|
(1) | Assumes an Advisory Board 3 members vs 6 today |
|
|
(2) | D&O insurance will need a tail policy for next 4 - 5 years so no incremental savings currently |
|
|
(3) | Reduction for Proxy and Other Quarterly Filings however still a need for vendor relations press releases |
|
|
(4) | Eliminate SEC filings however still a need for auaudits and reviews on a quarterly basis |
|
|
(5) | Eliminate internal legal work on SEC filings |
|
|
(6) | Continued need for reporting to management and owners |
|
|
|
|
|
• | In addition, if the Company remains public, it will have to spend approximately additional $0.75-$1.0 million starting from 2007 in order to be Sarbane-Oxley compliant. | |
|
|
|
• | In 2007, the savings would be in the range of $1.35 - $1.6 million, or approximately $1.5 million on average. |
7
Draft/Confidential
Financial Performance and Projections
|
REPRESENTATIVE LEVEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(figures in thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Fiscal Year Ended December 31, |
| LTM |
| FYE |
|
|
| Adjusted |
|
| ||||||||||
|
| 12/31/03 |
| 12/31/04 |
| 12/31/05 |
|
|
|
|
|
| ||||||||||
|
|
|
| |||||||||||||||||||
| ||||||||||||||||||||||
Reported Revenue |
| $ | 370.1 |
| $ | 360.5 |
| $ | 407.4 |
| $ | 418.0 |
| $ | 428.3 |
|
|
| $ | 428.3 |
|
|
| ||||||||||||||||||||||
Revenue Growth % |
|
|
|
|
| -2.6 | % |
| 13.0 | % |
|
|
|
| 5.1 | % |
|
|
| 5.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Cost of Goods Sold |
| $ | 233.6 |
| $ | 216.9 |
| $ | 253.0 |
| $ | 262.3 |
| $ | 262.4 |
|
|
| $ | 262.4 |
|
|
|
| |||||||||||||||||||||
Gross Profit |
| $ | 136.5 |
| $ | 143.6 |
| $ | 154.5 |
| $ | 155.8 |
| $ | 165.8 |
|
|
| $ | 165.8 |
|
|
Less: Selling, General & Administrative |
| $ | 136.5 |
| $ | 134.6 |
| $ | 137.4 |
| $ | 140.3 |
| $ | 152.6 |
|
|
| $ | 152.6 |
|
|
Less: Special Charges |
| $ | 0.2 |
| $ | 1.7 |
| ($ | 0.1 | ) | ($ | 0.1 | ) | $ | 0.0 |
|
|
| $ | 0.0 |
|
|
Add: Depreciation and Amortization |
| $ | 4.1 |
| $ | 3.3 |
| $ | 2.9 |
| $ | 2.7 |
| $ | 2.4 |
|
|
| $ | 2.4 |
|
|
Add: Adjustments (1) |
| $ | 4.6 |
| $ | 5.9 |
| ($ | 1.1 | ) | ($ | 1.7 | ) | $ | 0.8 |
|
|
| $ | 4.9 |
|
|
|
| |||||||||||||||||||||
| ||||||||||||||||||||||
Adjusted EBITDA |
| $ | 8.6 |
| $ | 16.5 |
| $ | 18.9 |
| $ | 16.5 |
| $ | 16.4 |
|
|
| $ | 20.5 |
|
|
| ||||||||||||||||||||||
EBITDA Margin % |
|
| 2.3 | % |
| 4.6 | % |
| 4.6 | % |
| 3.9 | % |
| 3.8 | % |
|
|
| 4.8 | % |
|
| ||||||||||||||||||||||
Less: Depreciation and Amortization |
| $ | 4.1 |
| $ | 3.3 |
| $ | 2.9 |
| $ | 2.7 |
| $ | 2.4 |
|
|
| $ | 2.4 |
|
|
|
| |||||||||||||||||||||
| ||||||||||||||||||||||
Adjusted EBIT |
| $ | 4.5 |
| $ | 13.2 |
| $ | 16.0 |
| $ | 13.8 |
| $ | 14.0 |
|
|
| $ | 18.1 |
|
|
| ||||||||||||||||||||||
EBIT Margin % |
|
| 1.2 | % |
| 3.7 | % |
| 3.9 | % |
| 3.3 | % |
| 3.3 | % |
|
|
| 4.2 | % |
|
Footnotes:
|
|
(1) | Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating One-Time Charges/(Gains) |
|
|
|
|
|
|
|
|
|
|
|
Severance and Termination Costs |
| $0.7 |
| $2.6 |
| $0.8 |
| $1.5 |
| $0.0 |
|
Special Charges / Restructuring Related Charges |
| $1.3 |
| $1.5 |
| ($0.1 | ) | ($0.1 | ) | $0.7 |
|
Facility Exit Costs |
| $0.0 |
| $0.2 |
| $0.0 |
| $0.0 |
| $0.0 |
|
Compensation Continuation Agreement Costs |
| $3.1 |
| $0.0 |
| $0.0 |
| $0.0 |
| $0.0 |
|
Change in Vacation of Sick Policy |
| ($1.6 | ) | $0.0 |
| $0.0 |
| $0.0 |
| $0.0 |
|
Going Private |
| $0.0 |
| $0.0 |
| $0.0 |
| $0.2 |
| $0.0 |
|
Shareholder Relation Fees |
| $0.0 |
| $0.0 |
| $0.0 |
| ($0.0 | ) | $0.0 |
|
Severance - Former Employee’s Litigation |
| $0.0 |
| $0.0 |
| $0.0 |
| ($0.2 | ) | $0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Adjustsments |
|
|
|
|
|
|
|
|
|
|
|
Legal and Audit Fees related to Restatement |
| $0.0 |
| $0.6 |
| $2.6 |
| $1.2 |
| $0.0 |
|
Class Action Litigation Reserve |
| $0.0 |
| $0.5 |
| $0.0 |
| $0.0 |
| $0.0 |
|
Rakesh Kaul Accrual |
| $0.0 |
| $0.2 |
| ($4.5 | ) | ($4.5 | ) | $0.0 |
|
Compensation Expenses Related to Stock Options |
| $1.1 |
| $0.2 |
| $0.1 |
| $0.1 |
| $0.1 |
|
| |||||||||||
Total Adjustments |
| $4.6 |
| $5.9 |
| ($1.1 | ) | ($1.7 | ) | $0.8 |
|
|
|
|
|
Potential Cost Adjustments |
|
|
|
Information Systems |
| $0.4 |
|
Global Sourcing Related Increase |
| $0.7 |
|
Increase in Payroll (excl. reclass) |
| $2.2 |
|
Increase in Fringe |
| $0.8 |
|
|
|
|
|
Operating One-Time Charges/(Gains) |
|
|
|
Restructuring Special Charges |
| $0.7 |
|
|
|
|
|
Other Adjustments |
|
|
|
Compensation Related to Stock Options |
| $0.1 |
|
|
|
|
|
|
|
|
|
|
| ||
Total Adjustments |
| $4.9 |
|
8
Draft/Confidential
Draft/Cofidential
|
|
Valuation Implications | |
|
|
CHELSEY OFFER | |
|
|
|
|
|
(figures in millions, except per share data) |
|
|
|
|
|
|
|
|
|
Chelsey Offer Price |
| $ | 1.25 |
|
Shares Outstanding(1) |
|
| 32.7 |
|
|
|
| ||
Equity Value |
| $ | 40.9 |
|
Add: Net Debt(2) |
|
| 30.1 |
|
Add: Preferred Stock(3) |
|
| 57.5 |
|
|
|
| ||
Enterprise Value |
| $ | 128.5 |
|
|
|
|
|
|
2005 Adjusted EBITDA(4) |
| $ | 19.5 |
|
|
|
| ||
Implied 2005 EBITDA Multiple |
|
| 6.6x |
|
|
|
| ||
|
|
|
|
|
3/06 LTM Adjusted EBITDA(4) |
| $ | 17.1 |
|
|
|
| ||
Implied 3/06 LTM EBITDA Multiple |
|
| 7.5x |
|
|
|
| ||
|
|
|
|
|
2006 Adjusted EBITDA per Budget(4) |
| $ | 17.0 |
|
|
|
| ||
Implied 2006 EBITDA Multiple |
|
| 7.6x |
|
|
|
| ||
|
|
|
|
|
2006 Adjusted EBITDA with Addbacks(4) |
| $ | 21.1 |
|
|
|
| ||
Implied 2006 EBITDA Multiple |
|
| 6.1x |
|
|
|
|
|
Implied Multiple Analysis |
|
|
EBITDA Multiples |
|
|
|
|
|
|
1 | Includes in-the-money options based on treasury method. | |
|
| |
2 | In calculating Net Debt, average Revolver balance for the past four quarters is used. | |
|
| |
3 | Liquidation preference plus accrued dividends as of 3/31/06. | |
|
| |
4 | Includes public company cost savings of $0.6 million. Source: Management. | |
|
| |
5 | Comparable companies include: Charming Shoppes, Blyth and Alloy. |
Draft/Confidential
Valuation Implications
(figures in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 2005 Adjusted EBITDA |
|
|
|
|
| $ 18.9 |
|
|
|
|
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
|
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|
|
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|
| |||||||||||||||||||||||||||
Public Company Costs/Savings | $ | 1.5 |
|
| Public Company Costs | $ | 0.6 |
|
| Public Company Costs | $ | 0.0 |
| |||||||||||||||||||||||
EBITDA |
| $ | 20.4 |
|
| EBITDA |
| $ | 19.5 |
|
| EBITDA |
| $ | 18.9 |
| ||||||||||||||||||||
|
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|
|
|
|
|
|
|
| ||||||||||
EBITDA |
| Implied Price |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public | ||||||||||||||||||
|
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|
|
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| |||||||||||||||||||||||||||
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| |||
6.3x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
| 6.6x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
| 6.8x |
|
| $ | 1.25 |
|
| $ | 8.8 |
| |||
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
6.0x |
|
| $ | 1.07 |
|
| $ | 7.5 |
|
|
| 6.0x |
|
| $ | 0.90 |
|
| $ | 6.3 |
|
|
| 6.0x |
|
| $ | 0.79 |
|
| $ | 5.6 |
| |||
6.5x |
|
| $ | 1.38 |
|
| $ | 9.7 |
|
|
| 6.5x |
|
| $ | 1.20 |
|
| $ | 8.5 |
|
|
| 6.5x |
|
| $ | 1.08 |
|
| $ | 7.6 |
| |||
7.0x |
|
| $ | 1.69 |
|
| $ | 11.9 |
|
|
| 7.0x |
|
| $ | 1.50 |
|
| $ | 10.6 |
|
|
| 7.0x |
|
| $ | 1.37 |
|
| $ | 9.7 |
| |||
7.5x |
|
| $ | 2.00 |
|
| $ | 14.1 |
|
|
| 7.5x |
|
| $ | 1.80 |
|
| $ | 12.7 |
|
|
| 7.5x |
|
| $ | 1.66 |
|
| $ | 11.7 |
| |||
8.0x |
|
| $ | 2.31 |
|
| $ | 16.4 |
|
|
| 8.0x |
|
| $ | 2.09 |
|
| $ | 14.8 |
|
|
| 8.0x |
|
| $ | 1.95 |
|
| $ | 13.8 |
| |||
8.5x |
|
| $ | 2.63 |
|
| $ | 18.6 |
|
|
| 8.5x |
|
| $ | 2.39 |
|
| $ | 16.9 |
|
|
| 8.5x |
|
| $ | 2.24 |
|
| $ | 15.8 |
| |||
9.0x |
|
| $ | 2.94 |
|
| $ | 20.8 |
|
|
| 9.0x |
|
| $ | 2.69 |
|
| $ | 19.0 |
|
|
| 9.0x |
|
| $ | 2.53 |
|
| $ | 17.9 |
| |||
9.5x |
|
| $ | 3.25 |
|
| $ | 23.0 |
|
|
| 9.5x |
|
| $ | 2.99 |
|
| $ | 21.1 |
|
|
| 9.5x |
|
| $ | 2.81 |
|
| $ | 19.9 |
| |||
10.0x |
|
| $ | 3.56 |
|
| $ | 25.2 |
|
|
| 10.0x |
|
| $ | 3.28 |
|
| $ | 23.3 |
|
|
| 10.0x |
|
| $ | 3.10 |
|
| $ | 22.0 |
|
|
|
|
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
11
Draft/Confidential
Valuation Implications
(figures in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3/06 LTM Adjusted EBITDA |
|
|
|
|
|
| $16.5 |
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Public Company Costs |
| $ | 1.5 |
|
|
| Public Company Costs |
| $ | 0.6 |
|
|
| Public Company Costs |
| $ | 0.0 |
| |||||||||||||||||||
EBITDA |
| $ | 18.0 |
|
|
| EBITDA |
| $ | 17.1 |
|
|
| EBITDA |
| $ | 16.5 |
| |||||||||||||||||||
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
EBITDA |
| Implied Price |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
7.1x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 7.5x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 7.8x |
|
| $ | 1.25 |
|
| $ | 8.8 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
6.0x |
|
| $ | 0.62 |
|
| $ | 4.4 |
|
|
|
| 6.0x |
|
| $ | 0.45 |
|
| $ | 3.2 |
|
|
|
| 6.0x |
|
| $ | 0.34 |
|
| $ | 2.4 |
| ||
6.5x |
|
| $ | 0.90 |
|
| $ | 6.3 |
|
|
|
| 6.5x |
|
| $ | 0.72 |
|
| $ | 5.0 |
|
|
|
| 6.5x |
|
| $ | 0.60 |
|
| $ | 4.2 |
| ||
7.0x |
|
| $ | 1.17 |
|
| $ | 8.3 |
|
|
|
| 7.0x |
|
| $ | 0.98 |
|
| $ | 6.9 |
|
|
|
| 7.0x |
|
| $ | 0.85 |
|
| $ | 6.0 |
| ||
7.5x |
|
| $ | 1.44 |
|
| $ | 10.2 |
|
|
|
| 7.5x |
|
| $ | 1.24 |
|
| $ | 8.7 |
|
|
|
| 7.5x |
|
| $ | 1.10 |
|
| $ | 7.8 |
| ||
8.0x |
|
| $ | 1.72 |
|
| $ | 12.1 |
|
|
|
| 8.0x |
|
| $ | 1.50 |
|
| $ | 10.6 |
|
|
|
| 8.0x |
|
| $ | 1.35 |
|
| $ | 9.5 |
| ||
8.5x |
|
| $ | 1.99 |
|
| $ | 14.1 |
|
|
|
| 8.5x |
|
| $ | 1.76 |
|
| $ | 12.4 |
|
|
|
| 8.5x |
|
| $ | 1.60 |
|
| $ | 11.3 |
| ||
9.0x |
|
| $ | 2.27 |
|
| $ | 16.0 |
|
|
|
| 9.0x |
|
| $ | 2.02 |
|
| $ | 14.3 |
|
|
|
| 9.0x |
|
| $ | 1.86 |
|
| $ | 13.1 |
| ||
9.5x |
|
| $ | 2.54 | �� |
| $ | 18.0 |
|
|
|
| 9.5x |
|
| $ | 2.28 |
|
| $ | 16.1 |
|
|
|
| 9.5x |
|
| $ | 2.11 |
|
| $ | 14.9 |
| ||
10.0x |
|
| $ | 2.82 |
|
| $ | 20.0 |
|
|
|
| 10.0x |
|
| $ | 2.54 |
|
| $ | 18.0 |
|
|
|
| 10.0x |
|
| $ | 2.36 |
|
| $ | 16.7 |
|
|
|
|
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
12
Draft/Confidential
Valuation Implications
(figures in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| 2006 Adjusted EBITDA per Budget |
|
| $ | 16.4 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Public Company Costs |
| $ | 1.5 |
|
|
| Public Company Costs |
| $ | 0.6 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
| ||||||||||||||||||||||||||
EBITDA |
| $ | 17.9 |
|
|
| EBITDA |
| $ | 17.0 |
|
|
| EBITDA |
|
| $ | 16.4 |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| EBITDA |
| Implied |
| Paid to Public |
|
|
| EBITDA |
| Implied |
| Paid to Public |
|
|
| EBITDA |
| Implied |
| Paid to Public | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
| 7.2x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 7.6x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 7.8x |
|
| $ | 1.25 |
|
|
| $ | 8.8 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| 6.0x |
|
| $ | 0.60 |
|
| $ | 4.2 |
|
|
|
| 6.0x |
|
| $ | 0.44 |
|
| $ | 3.1 |
|
|
|
| 6.0x |
|
| $ | 0.33 |
|
|
| $ | 2.3 |
| ||||||||
| 6.5x |
|
| $ | 0.88 |
|
| $ | 6.2 |
|
|
|
| 6.5x |
|
| $ | 0.70 |
|
| $ | 4.9 |
|
|
|
| 6.5x |
|
| $ | 0.58 |
|
|
| $ | 4.1 |
| ||||||||
| 7.0x |
|
| $ | 1.15 |
|
| $ | 8.1 |
|
|
|
| 7.0x |
|
| $ | 0.96 |
|
| $ | 6.7 |
|
|
|
| 7.0x |
|
| $ | 0.83 |
|
|
| $ | 5.8 |
| ||||||||
| 7.5x |
|
| $ | 1.42 |
|
| $ | 10.0 |
|
|
|
| 7.5x |
|
| $ | 1.22 |
|
| $ | 8.6 |
|
|
|
| 7.5x |
|
| $ | 1.08 |
|
|
| $ | 7.6 |
| ||||||||
| 8.0x |
|
| $ | 1.70 |
|
| $ | 12.0 |
|
|
|
| 8.0x |
|
| $ | 1.47 |
|
| $ | 10.4 |
|
|
|
| 8.0x |
|
| $ | 1.33 |
|
|
| $ | 9.4 |
| ||||||||
| 8.5x |
|
| $ | 1.97 |
|
| $ | 13.9 |
|
|
|
| 8.5x |
|
| $ | 1.73 |
|
| $ | 12.2 |
|
|
|
| 8.5x |
|
| $ | 1.58 |
|
|
| $ | 11.1 |
| ||||||||
| 9.0x |
|
| $ | 2.24 |
|
| $ | 15.8 |
|
|
|
| 9.0x |
|
| $ | 1.99 |
|
| $ | 14.1 |
|
|
|
| 9.0x |
|
| $ | 1.83 |
|
|
| $ | 12.9 |
| ||||||||
| 9.5x |
|
| $ | 2.52 |
|
| $ | 17.8 |
|
|
|
| 9.5x |
|
| $ | 2.25 |
|
| $ | 15.9 |
|
|
|
| 9.5x |
|
| $ | 2.08 |
|
|
| $ | 14.7 |
| ||||||||
| 10.0x |
|
| $ | 2.79 |
|
| $ | 19.7 |
|
|
|
| 10.0x |
|
| $ | 2.51 |
|
| $ | 17.8 |
|
|
|
| 10.0x |
|
| $ | 2.33 |
|
|
| $ | 16.5 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
13
Draft/Confidential
Valuation Implications
(figures in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| 2006 Adjusted EBITDA with Addbacks |
|
| $ | 20.5 |
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Public Company Costs |
| $ | 1.5 |
|
|
| Public Company Costs |
| $ | 0.6 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
| ||||||||||||||||||||||||||
EBITDA |
| $ | 22.0 |
|
|
| EBITDA |
| $ | 21.1 |
|
|
| EBITDA |
|
| $ | 20.5 |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| EBITDA |
| Implied |
| Paid to Public |
|
|
| EBITDA |
| Implied |
| Paid to Public |
|
|
| EBITDA |
| Implied |
| Paid to Public | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
| 5.8x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 6.1x |
|
| $ | 1.25 |
|
| $ | 8.8 |
|
|
|
| 6.3x |
|
| $ | 1.25 |
|
|
| $ | 8.8 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| 6.0x |
|
| $ | 1.36 |
|
| $ | 9.6 |
|
|
|
| 6.0x |
|
| $ | 1.19 |
|
| $ | 8.4 |
|
|
|
| 6.0x |
|
| $ | 1.08 |
|
|
| $ | 7.6 |
| ||||||||
| 6.5x |
|
| $ | 1.70 |
|
| $ | 12.0 |
|
|
|
| 6.5x |
|
| $ | 1.52 |
|
| $ | 10.7 |
|
|
|
| 6.5x |
|
| $ | 1.40 |
|
|
| $ | 9.9 |
| ||||||||
| 7.0x |
|
| $ | 2.03 |
|
| $ | 14.3 |
|
|
|
| 7.0x |
|
| $ | 1.84 |
|
| $ | 13.0 |
|
|
|
| 7.0x |
|
| $ | 1.71 |
|
|
| $ | 12.1 |
| ||||||||
| 7.5x |
|
| $ | 2.37 |
|
| $ | 16.7 |
|
|
|
| 7.5x |
|
| $ | 2.16 |
|
| $ | 15.3 |
|
|
|
| 7.5x |
|
| $ | 2.02 |
|
|
| $ | 14.3 |
| ||||||||
| 8.0x |
|
| $ | 2.70 |
|
| $ | 19.1 |
|
|
|
| 8.0x |
|
| $ | 2.48 |
|
| $ | 17.5 |
|
|
|
| 8.0x |
|
| $ | 2.34 |
|
|
| $ | 16.5 |
| ||||||||
| 8.5x |
|
| $ | 3.04 |
|
| $ | 21.5 |
|
|
|
| 8.5x |
|
| $ | 2.80 |
|
| $ | 19.8 |
|
|
|
| 8.5x |
|
| $ | 2.65 |
|
|
| $ | 18.7 |
| ||||||||
| 9.0x |
|
| $ | 3.37 |
|
| $ | 23.9 |
|
|
|
| 9.0x |
|
| $ | 3.12 |
|
| $ | 22.1 |
|
|
|
| 9.0x |
|
| $ | 2.96 |
|
|
| $ | 21.0 |
| ||||||||
| 9.5x |
|
| $ | 3.71 |
|
| $ | 26.3 |
|
|
|
| 9.5x |
|
| $ | 3.45 |
|
| $ | 24.4 |
|
|
|
| 9.5x |
|
| $ | 3.27 |
|
|
| $ | 23.2 |
| ||||||||
| 10.0x |
|
| $ | 4.04 |
|
| $ | 28.7 |
|
|
|
| 10.0x |
|
| $ | 3.77 |
|
| $ | 26.7 |
|
|
|
| 10.0x |
|
| $ | 3.59 |
|
|
| $ | 25.4 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
14
Draft/Confidential
Valuation Implications
|
PRICE PERSHAREMATRIX |
EBITDA and EBITDA Multiple Impact on Price per Share |
| |||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
|
| Assumed Level of EBITDA |
| |||||||||||||||||||||||||||||||||||||
EBITDA |
| $ | 16.5 |
| $ | 17.0 |
| $ | 17.5 |
| $ | 18.0 |
| $ | 18.5 |
| $ | 19.0 |
| $ | 19.5 |
| $ | 20.0 |
| $ | 20.5 |
| $ | 21.0 |
| $ | 21.5 |
| $ | 22.0 |
| $ | 22.5 |
|
| ||||||||||||||||||||||||||||||||||||||||
6.0x |
| $ | 0.35 |
| $ | 0.44 |
| $ | 0.53 |
| $ | 0.62 |
| $ | 0.72 |
| $ | 0.81 |
| $ | 0.90 |
| $ | 0.99 |
| $ | 1.08 |
| $ | 1.18 |
| $ | 1.27 |
| $ | 1.36 |
| $ | 1.45 |
|
6.5x |
| $ | 0.60 |
| $ | 0.70 |
| $ | 0.80 |
| $ | 0.90 |
| $ | 1.00 |
| $ | 1.10 |
| $ | 1.20 |
| $ | 1.30 |
| $ | 1.40 |
| $ | 1.50 |
| $ | 1.60 |
| $ | 1.70 |
| $ | 1.79 |
|
7.0x |
| $ | 0.85 |
| $ | 0.96 |
| $ | 1.07 |
| $ | 1.18 |
| $ | 1.28 |
| $ | 1.39 |
| $ | 1.50 |
| $ | 1.60 |
| $ | 1.71 |
| $ | 1.82 |
| $ | 1.92 |
| $ | 2.03 |
| $ | 2.14 |
|
7.5x |
| $ | 1.11 |
| $ | 1.22 |
| $ | 1.34 |
| $ | 1.45 |
| $ | 1.57 |
| $ | 1.68 |
| $ | 1.79 |
| $ | 1.91 |
| $ | 2.02 |
| $ | 2.14 |
| $ | 2.25 |
| $ | 2.37 |
| $ | 2.48 |
|
8.0x |
| $ | 1.36 |
| $ | 1.48 |
| $ | 1.60 |
| $ | 1.73 |
| $ | 1.85 |
| $ | 1.97 |
| $ | 2.09 |
| $ | 2.22 |
| $ | 2.34 |
| $ | 2.46 |
| $ | 2.58 |
| $ | 2.70 |
| $ | 2.83 |
|
8.5x |
| $ | 1.61 |
| $ | 1.74 |
| $ | 1.87 |
| $ | 2.00 |
| $ | 2.13 |
| $ | 2.26 |
| $ | 2.39 |
| $ | 2.52 |
| $ | 2.65 |
| $ | 2.78 |
| $ | 2.91 |
| $ | 3.04 |
| $ | 3.17 |
|
9.0x |
| $ | 1.86 |
| $ | 2.00 |
| $ | 2.14 |
| $ | 2.28 |
| $ | 2.41 |
| $ | 2.55 |
| $ | 2.69 |
| $ | 2.83 |
| $ | 2.96 |
| $ | 3.10 |
| $ | 3.24 |
| $ | 3.38 |
| $ | 3.52 |
|
9.5x |
| $ | 2.12 |
| $ | 2.26 |
| $ | 2.41 |
| $ | 2.55 |
| $ | 2.70 |
| $ | 2.84 |
| $ | 2.99 |
| $ | 3.13 |
| $ | 3.28 |
| $ | 3.42 |
| $ | 3.57 |
| $ | 3.71 |
| $ | 3.86 |
|
10.0x |
| $ | 2.37 |
| $ | 2.52 |
| $ | 2.67 |
| $ | 2.83 |
| $ | 2.98 |
| $ | 3.13 |
| $ | 3.29 |
| $ | 3.44 |
| $ | 3.59 |
| $ | 3.74 |
| $ | 3.90 |
| $ | 4.05 |
| $ | 4.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Draft/Confidential
Valuation Implications
|
PRICE PERSHAREMATRIX(CONTINUED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2005 Gross Profit Margin and EBITDA Multiple Impact on Price per Share12 | |||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||
(in millions, except per share data) |
| ||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||
Gross Profit Margin |
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
EBITDA |
|
| 36.7% |
|
| 36.9% |
|
| 37.2% |
|
| 37.4% |
|
| 37.7% |
|
| 37.9% |
|
| 38.2% |
|
| 38.4% |
|
| 38.7% |
|
| 38.9% |
|
| 39.2% |
|
| 39.4% |
|
| 39.7% |
| |
|
| ||||||||||||||||||||||||||||||||||||||||
6.0x |
| $ | 0.90 |
| $ | 1.09 |
| $ | 1.27 |
| $ | 1.46 |
| $ | 1.65 |
| $ | 1.83 |
| $ | 2.02 |
| $ | 2.21 |
| $ | 2.39 |
| $ | 2.58 |
| $ | 2.77 |
| $ | 2.96 |
| $ | 3.14 |
| |
6.5x |
| $ | 1.20 |
| $ | 1.40 |
| $ | 1.60 |
| $ | 1.81 |
| $ | 2.01 |
| $ | 2.21 |
| $ | 2.41 |
| $ | 2.62 |
| $ | 2.82 |
| $ | 3.02 |
| $ | 3.22 |
| $ | 3.42 |
| $ | 3.63 |
| |
7.0x |
| $ | 1.50 |
| $ | 1.71 |
| $ | 1.93 |
| $ | 2.15 |
| $ | 2.37 |
| $ | 2.59 |
| $ | 2.80 |
| $ | 3.02 |
| $ | 3.24 |
| $ | 3.46 |
| $ | 3.68 |
| $ | 3.89 |
| $ | 4.11 |
| |
7.5x |
| $ | 1.80 |
| $ | 2.03 |
| $ | 2.26 |
| $ | 2.50 |
| $ | 2.73 |
| $ | 2.96 |
| $ | 3.20 |
| $ | 3.43 |
| $ | 3.66 |
| $ | 3.90 |
| $ | 4.13 |
| $ | 4.36 |
| $ | 4.60 |
| |
8.0x |
| $ | 2.09 |
| $ | 2.34 |
| $ | 2.59 |
| $ | 2.84 |
| $ | 3.09 |
| $ | 3.34 |
| $ | 3.59 |
| $ | 3.84 |
| $ | 4.09 |
| $ | 4.33 |
| $ | 4.58 |
| $ | 4.83 |
| $ | 5.08 |
| |
8.5x |
| $ | 2.39 |
| $ | 2.66 |
| $ | 2.92 |
| $ | 3.19 |
| $ | 3.45 |
| $ | 3.71 |
| $ | 3.98 |
| $ | 4.24 |
| $ | 4.51 |
| $ | 4.77 |
| $ | 5.04 |
| $ | 5.30 |
| $ | 5.57 |
| |
9.0x |
| $ | 2.69 |
| $ | 2.97 |
| $ | 3.25 |
| $ | 3.53 |
| $ | 3.81 |
| $ | 4.09 |
| $ | 4.37 |
| $ | 4.65 |
| $ | 4.93 |
| $ | 5.21 |
| $ | 5.49 |
| $ | 5.77 |
| $ | 6.05 |
| |
9.5x |
| $ | 2.99 |
| $ | 3.28 |
| $ | 3.58 |
| $ | 3.87 |
| $ | 4.17 |
| $ | 4.47 |
| $ | 4.76 |
| $ | 5.06 |
| $ | 5.35 |
| $ | 5.65 |
| $ | 5.95 |
| $ | 6.24 |
| $ | 6.54 |
| |
10.0x |
| $ | 3.28 |
| $ | 3.60 |
| $ | 3.91 |
| $ | 4.22 |
| $ | 4.53 |
| $ | 4.84 |
| $ | 5.15 |
| $ | 5.47 |
| $ | 5.78 |
| $ | 6.09 |
| $ | 6.40 |
| $ | 6.71 |
| $ | 7.02 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Resulting |
| $ | 19.5 |
| $ | 20.5 |
| $ | 21.5 |
| $ | 22.6 |
| $ | 23.6 |
| $ | 24.6 |
| $ | 25.6 |
| $ | 26.6 |
| $ | 27.7 |
| $ | 28.7 |
| $ | 29.7 |
| $ | 30.7 |
| $ | 31.7 |
|
|
|
|
|
|
|
|
|
1 | Assumes Membership EBITDA stays at $5.1 million. Adjusted gross profit margin from core business is 36.7%. | |
|
| |
2 | Starting EBITDA in this illustration is $19.5 million, after adjustments of $(0.5) million including public company cost savings of $0.6 million. |
| |
| 16 |
|
|
Draft/Confidential |
|
Valuation Implications
|
PRICE PERSHAREMATRIX(CONTINUED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
2006 Gross Profit Margin and EBITDA Multiple Impact on Price per Share12 | |||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||
(in millions, except per share data) | |||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
| EBITDA |
|
| 37.7% |
|
| 37.9% |
|
| 38.2% |
|
| 38.4% |
|
| 38.7% |
|
| 38.9% |
|
| 39.2% |
|
| 39.4% |
|
| 39.7% |
|
| 39.9% |
|
| 40.2% |
|
| 40.4% |
|
| 40.7% |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
|
| 6.0x |
| $ | 0.44 |
| $ | 0.63 |
| $ | 0.83 |
| $ | 1.03 |
| $ | 1.22 |
| $ | 1.42 |
| $ | 1.61 |
| $ | 1.81 |
| $ | 2.01 |
| $ | 2.20 |
| $ | 2.40 |
| $ | 2.60 |
| $ | 2.79 |
|
|
|
| 6.5x |
| $ | 0.70 |
| $ | 0.91 |
| $ | 1.12 |
| $ | 1.33 |
| $ | 1.55 |
| $ | 1.76 |
| $ | 1.97 |
| $ | 2.18 |
| $ | 2.40 |
| $ | 2.61 |
| $ | 2.82 |
| $ | 3.04 |
| $ | 3.25 |
|
|
|
| 7.0x |
| $ | 0.96 |
| $ | 1.18 |
| $ | 1.41 |
| $ | 1.64 |
| $ | 1.87 |
| $ | 2.10 |
| $ | 2.33 |
| $ | 2.56 |
| $ | 2.79 |
| $ | 3.02 |
| $ | 3.25 |
| $ | 3.48 |
| $ | 3.70 |
|
|
|
| 7.5x |
| $ | 1.22 |
| $ | 1.46 |
| $ | 1.71 |
| $ | 1.95 |
| $ | 2.20 |
| $ | 2.44 |
| $ | 2.69 |
| $ | 2.93 |
| $ | 3.18 |
| $ | 3.42 |
| $ | 3.67 |
| $ | 3.91 |
| $ | 4.16 |
|
|
|
| 8.0x |
| $ | 1.47 |
| $ | 1.74 |
| $ | 2.00 |
| $ | 2.26 |
| $ | 2.52 |
| $ | 2.78 |
| $ | 3.04 |
| $ | 3.31 |
| $ | 3.57 |
| $ | 3.83 |
| $ | 4.09 |
| $ | 4.35 |
| $ | 4.62 |
|
|
|
| 8.5x |
| $ | 1.73 |
| $ | 2.01 |
| $ | 2.29 |
| $ | 2.57 |
| $ | 2.85 |
| $ | 3.12 |
| $ | 3.40 |
| $ | 3.68 |
| $ | 3.96 |
| $ | 4.24 |
| $ | 4.52 |
| $ | 4.79 |
| $ | 5.07 |
|
|
|
| 9.0x |
| $ | 1.99 |
| $ | 2.29 |
| $ | 2.58 |
| $ | 2.88 |
| $ | 3.17 |
| $ | 3.47 |
| $ | 3.76 |
| $ | 4.05 |
| $ | 4.35 |
| $ | 4.64 |
| $ | 4.94 |
| $ | 5.23 |
| $ | 5.53 |
|
|
|
| 9.5x |
| $ | 2.25 |
| $ | 2.56 |
| $ | 2.87 |
| $ | 3.18 |
| $ | 3.50 |
| $ | 3.81 |
| $ | 4.12 |
| $ | 4.43 |
| $ | 4.74 |
| $ | 5.05 |
| $ | 5.36 |
| $ | 5.67 |
| $ | 5.98 |
|
|
|
| 10.0x |
| $ | 2.51 |
| $ | 2.84 |
| $ | 3.17 |
| $ | 3.49 |
| $ | 3.82 |
| $ | 4.15 |
| $ | 4.48 |
| $ | 4.80 |
| $ | 5.13 |
| $ | 5.46 |
| $ | 5.78 |
| $ | 6.11 |
| $ | 6.44 |
|
Resulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
|
| $ | 17.0 |
| $ | 18.0 |
| $ | 19.1 |
| $ | 20.2 |
| $ | 21.3 |
| $ | 22.3 |
| $ | 23.4 |
| $ | 24.5 |
| $ | 25.5 |
| $ | 26.6 |
| $ | 27.7 |
| $ | 28.8 |
| $ | 29.8 |
|
|
|
|
|
| |
1 | Assumes EBITDA from membership stays at $4.4 million. Adjusted gross profit margin from core business is 37.7%. | |
|
| |
2 | Starting EBITDA in this illustration is $17.0 million, after adjustments of $1.3 million including public company cost savings of $0.6 million. |
17
Draft/Confidential
Valuation Implications
|
OBSERVED MULTIPLES |
|
|
Observed Multiples |
|
EBITDA Multiples |
|
|
|
|
|
1 | Comparable companies include: Charming Shoppes, Blyth, and Alloy. |
18
Draft/Confidential
Valuation Implications
|
COMPARABLE PUBLIC COMPANY DEBT-FREE MULTIPLES |
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|
(figures in millions) |
|
|
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|
|
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|
|
|
|
|
|
| ||
| ||||||||||||||||||||||
|
|
|
|
| EV / EBITDA |
|
|
|
|
| EV / EBIT |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| EV (1) |
| FYE |
| LTM |
| NFY |
|
|
| EV (1) |
| FYE |
| LTM |
| NFY |
| ||
|
|
|
|
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|
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|
|
| ||||||||||
|
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|
|
|
|
| ||||||
Tier 1: Direct Marketers in Apparel and Home Fashion |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
| Coldwater Creek Inc (2) |
| $ | 2,636.8 |
| NMF |
| NMF |
| 19.7x |
| Coldwater Creek Inc (2) |
|
| 2,636.8 |
| 35.6x |
| 35.6x |
| 32.8x |
|
| Charming Shoppes Inc(2) |
| $ | 2,027.5 |
| 8.2x |
| 8.2x |
| 7.6x |
| Charming Shoppes Inc(2) |
| $ | 2,027.5 |
| 13.0x |
| 13.0x |
| 11.3x |
|
| Blyth Inc (3) |
| $ | 1,057.7 |
| 7.2x |
| 7.2x |
| NA |
| Blyth Inc (3) |
|
| 1,057.7 |
| 9.6x |
| 9.6x |
| 10.1x |
|
| Delias Inc (4) |
| $ | 266.8 |
| NMF |
| NMF |
| NA |
| Delias Inc (4) |
|
| 266.8 |
| NMF |
| NMF |
| NA |
|
| Alloy Inc (2) |
| $ | 128.4 |
| 7.5x |
| 7.5x |
| 6.3x |
| Alloy Inc (2) |
|
| 128.4 |
| 10.7x |
| 10.7x |
| 6.6x |
|
| Blair Corp (5) |
| $ | 120.2 |
| 3.1x |
| 3.1x |
| NA |
| Blair Corp (5) |
|
| 120.2 |
| 4.5x |
| 4.5x |
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2: Direct Marketers in Other Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Cabelas Inc (2) |
| $ | 1,447.2 |
| 9.6x |
| 9.6x |
| 7.9x |
| Cabelas Inc (2) |
|
| 1,447.2 |
| 12.6x |
| 12.6x |
| 10.8x |
|
| Sportsmans Guide Inc (2) |
| $ | 213.5 |
| 10.9x |
| 10.9x |
| 9.4x |
| Sportsmans Guide Inc (2) |
|
| 213.5 |
| 11.8x |
| 11.8x |
| 12.4x |
|
| Petmed Express Inc (2) |
| $ | 149.0 |
| 11.5x |
| 8.3x |
| 8.1x |
| Petmed Express Inc (2) |
| $ | 149.0 |
| 12.0x |
| 8.6x |
| 8.4x |
|
| Pc Mall Inc (3) |
| $ | 118.8 |
| NMF |
| NMF |
| NA |
| Pc Mall Inc (3) |
|
| 118.8 |
| NMF |
| NMF |
| 9.4x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Low |
|
|
|
| 7.2x |
| 7.2x |
| 6.3x |
| Low |
|
|
|
| 9.6x |
| 8.6x |
| 6.6x |
|
| High |
|
|
|
| 11.5x |
| 10.9x |
| 19.7x |
| High |
|
|
|
| 35.6x |
| 35.6x |
| 32.8x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median |
|
|
|
| 8.9x |
| 8.3x |
| 8.0x |
| Median |
|
|
|
| 12.0x |
| 11.8x |
| 10.4x |
|
| Mean |
|
|
|
| 9.1x |
| 8.6x |
| 9.9x |
| Mean |
|
|
|
| 15.1x |
| 14.6x |
| 12.7x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 3: Home Fashion Retailers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Bed Bath & Beyond Inc (2)(3) |
| $ | 11,111.6 |
| 11.2x |
| 11.2x |
| 10.3x |
| Bed Bath & Beyond Inc (2)(3) |
| $ | 11,111.6 |
| 12.6x |
| 12.6x |
| 11.5x |
|
| Williams-Sonoma Inc (3) |
| $ | 4,627.7 |
| 9.6x |
| 9.6x |
| 9.0x |
| Williams-Sonoma Inc (3) |
| $ | 4,627.7 |
| 12.9x |
| 12.9x |
| 12.0x |
|
Footnotes:
|
|
(1) | EV is calculated based on market value of equity as of May 4, 2006, plus net debt. Revolver balance is based on the average balance in the last 4 quarters. |
|
|
(2) | IBES consensus projections. |
|
|
(3) | IBES consensus projections. No EBITDA projection available. |
|
|
(4) | No projections available. Delis is excluded from the multiple range due to the limited trading history. |
|
|
(5) | No projections available. Blair is excluded from the multiple range. |
19
Draft/Confidential
Valuation Implications
|
RISK RANKING |
|
|
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|
|
Size |
| Size |
| Historical Growth |
| Historical Growth |
| Projected Growth | |||||||||||||||
(Revenue, millions) |
| (Enterprise Value, millions) (1) |
| (2-Year Revenue) |
| (1-Year Revenue) |
| (1-Year Revenue) | |||||||||||||||
|
|
|
| ||||||||||||||||||||
Charming Shoppes Inc | $ | 2,756 |
|
| Coldwater Creek Inc | $ | 2,637 |
|
| Coldwater Creek Inc |
| 23.3 | % |
| Coldwater Creek Inc |
| 33.5 | % |
| Coldwater Creek Inc |
| 25.9 | % |
Cabelas Inc | $ | 1,800 |
|
| Charming Shoppes Inc | $ | 2,028 |
|
| Sportsmans Guide Inc |
| 21.0 | % |
| Sportsmans Guide Inc |
| 22.7 | % |
| Cabelas Inc |
| 12.9 | % |
Blyth Inc | $ | 1,573 |
|
| Cabelas Inc | $ | 1,447 |
|
| Delias Inc |
| 17.2 | % |
| Delias Inc |
| 19.8 | % |
| Charming Shoppes Inc |
| 11.6 | % |
Pc Mall Inc | $ | 997 |
|
| Blyth Inc | $ | 1,058 |
|
| Cabelas Inc |
| 13.7 | % |
| Charming Shoppes Inc |
| 18.0 | % |
| Sportsmans Guide Inc |
| 8.5 | % |
Coldwater Creek Inc | $ | 788 |
|
| Delias Inc | $ | 267 |
|
| Charming Shoppes Inc |
| 9.8 | % |
| Cabelas Inc |
| 15.7 | % |
| Hanover Direct |
| 5.1 | % |
Blair Corp | $ | 493 |
|
| Sportsmans Guide Inc | $ | 213 |
|
| Pc Mall Inc |
| 7.3 | % |
| Hanover Direct |
| 13.0 | % |
| Alloy Inc |
| 4.7 | % |
Hanover Direct | $ | 418 |
|
| Alloy Inc | $ | 128 |
|
| Hanover Direct |
| 4.9 | % |
| Pc Mall Inc |
| 1.9 | % |
| Blyth Inc |
| -0.7 | % |
Sportsmans Guide Inc | $ | 285 |
|
| Blair Corp | $ | 120 |
|
| Blyth Inc |
| 2.2 | % |
| Blyth Inc |
| -0.8 | % |
| Pc Mall Inc |
| -2.1 | % |
Delias Inc | $ | 219 |
|
| Pc Mall Inc | $ | 119 |
|
| Blair Corp |
| -11.1 | % |
| Blair Corp |
| -8.9 | % |
| Delias Inc |
| NA |
|
Alloy Inc | $ | 195 |
|
|
|
|
|
|
| Alloy Inc |
| NA |
|
| Alloy Inc |
| NA |
|
| Blair Corp |
| NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Historical Growth |
| Historical Growth |
| Projected Growth |
| Projected Growth |
| Profitability | |||||||||||||||
|
|
|
| ||||||||||||||||||||
Coldwater Creek Inc |
| 65.0 | % |
| Alloy Inc |
| 256.0 | % |
| Coldwater Creek Inc |
| 31.5 | % |
| Pc Mall Inc |
| 30.0 | % |
| Coldwater Creek Inc |
| 9.4 | % |
Hanover Direct |
| 48.3 | % |
| Coldwater Creek Inc |
| 50.6 | % |
| Cabelas Inc |
| 22.2 | % |
| Charming Shoppes Inc |
| 24.0 | % |
| Blyth Inc |
| 7.0 | % |
Sportsmans Guide Inc |
| 33.4 | % |
| Sportsmans Guide Inc |
| 36.7 | % |
| Alloy Inc |
| 18.4 | % |
| Sportsmans Guide Inc |
| 20.0 | % |
| Cabelas Inc |
| 6.4 | % |
Charming Shoppes Inc |
| 23.7 | % |
| Charming Shoppes Inc |
| 26.2 | % |
| Sportsmans Guide Inc |
| 15.7 | % |
| Cabelas Inc |
| 15.0 | % |
| Sportsmans Guide Inc |
| 6.3 | % |
Cabelas Inc |
| 16.1 | % |
| Cabelas Inc |
| 17.0 | % |
| Charming Shoppes Inc |
| 7.5 | % |
| Alloy Inc |
| NA |
|
| Alloy Inc |
| 6.1 | % |
Blair Corp |
| 7.6 | % |
| Hanover Direct |
| 14.6 | % |
| Hanover Direct |
| -13.4 | % |
| Blair Corp |
| NA |
|
| Charming Shoppes Inc |
| 5.6 | % |
Blyth Inc |
| -17.5 | % |
| Blair Corp |
| 10.0 | % |
| Delias Inc |
| NMF |
| Coldwater Creek Inc |
| NA |
|
| Blair Corp |
| 5.4 | % | |
Pc Mall Inc |
| -34.6 | % |
| Blyth Inc |
| -27.3 | % |
| Pc Mall Inc |
| NA |
|
| Delias Inc |
| NA |
|
| Hanover Direct |
| 3.3 | % |
Delias Inc |
| NMF |
|
| Pc Mall Inc |
| -64.2 | % |
| Blair Corp |
| NA |
|
| Hanover Direct |
| NA |
|
| Pc Mall Inc |
| 0.0 | % |
Alloy Inc |
| NA |
|
| Delias Inc |
| NMF |
|
| Blyth Inc |
| NA |
|
| Blyth Inc |
| NA |
|
| Delias Inc |
| -0.4 | % |
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Profitability |
| Relative Depreciation |
| Internal Investment |
| Liquidity |
| Leverage | |||||||||||||||
|
|
|
| ||||||||||||||||||||
Coldwater Creek Inc |
| 12.9 | % |
| Delias Inc |
| 119.9 | % |
| Cabelas Inc |
| 10.8 | % |
| Blyth Inc |
| 2.8 |
|
| Coldwater Creek Inc |
| 0.0x |
|
Blyth Inc |
| 9.4 | % |
| Pc Mall Inc |
| 101.2 | % |
| Coldwater Creek Inc |
| 10.3 | % |
| Blair Corp |
| 2.3 |
|
| Blyth Inc |
| 0.0x |
|
Charming Shoppes Inc |
| 8.9 | % |
| Alloy Inc |
| 55.2 | % |
| Delias Inc |
| 4.6 | % |
| Alloy Inc |
| 2.0 |
|
| Charming Shoppes Inc |
| 0.0x |
|
Alloy Inc |
| 8.8 | % |
| Charming Shoppes Inc |
| 37.0 | % |
| Charming Shoppes Inc |
| 3.8 | % |
| Coldwater Creek Inc |
| 2.0 |
|
| Sportsmans Guide Inc |
| 0.0x |
|
Cabelas Inc |
| 8.4 | % |
| Blair Corp |
| 30.3 | % |
| Blair Corp |
| 1.6 | % |
| Charming Shoppes Inc |
| 1.8 |
|
| Blair Corp |
| 0.0x |
|
Blair Corp |
| 7.8 | % |
| Coldwater Creek Inc |
| 27.0 | % |
| Alloy Inc |
| 1.4 | % |
| Hanover Direct |
| 1.4 |
|
| Cabelas Inc |
| 1.2x |
|
Sportsmans Guide Inc |
| 6.9 | % |
| Blyth Inc |
| 25.6 | % |
| Blyth Inc |
| 1.1 | % |
| Cabelas Inc |
| 1.3 |
|
| Hanover |
| 1.8x |
|
Hanover Direct |
| 3.9 | % |
| Cabelas Inc |
| 23.8 | % |
| Hanover Direct |
| 0.4 | % |
| Pc Mall Inc |
| 1.2 |
|
| Delias Inc |
| 2.3x |
|
Delias Inc |
| 2.0 | % |
| Hanover Direct |
| 16.1 | % |
| Sportsmans Guide Inc |
| 0.3 | % |
| Sportsmans Guide Inc |
| 1.2 |
|
| Alloy Inc |
| 4.3x |
|
|
|
|
|
| Sportsmans Guide Inc |
| 7.5 | % |
| Pc Mall Inc |
| 0.3 | % |
| Delias Inc |
| 0.9 |
|
| Pc Mall Inc |
| 11.0x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | EV is calcuated based on market value of equity, plus the net debt. Revolver balance is based on the average balance in the last 4 quarters. |
|
|
(2) | Hanover EBITDA has not been adjusted for any public company cost savings. |
20
Draft/Confidential
Valuation Implications
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
COMPARABLE TRANSACTION SUMMARY1 | ||||||||||||||||||||||||||
|
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|
|
(figures in millions) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| LTM Enterprise Value Multiples |
|
| Premium |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Announced |
| Effective |
| Target |
| Target Industry |
| Acquiror |
|
| EV |
| Revenue |
| EBITDA |
| EBIT |
| EBITDA |
| 1 Day |
| 5 Days |
| 20 Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/5/2006 |
| Pending |
| Sportsman’s Guide Inc. |
| Catalog Retail |
| PPR SA |
| $ | 265.0 |
| 0.93 x |
| 13.6 x |
| 14.7 x |
| 6.9% |
| 14.8% |
| 17.8% |
| 18.8% |
|
2/5/2006 |
| 5/3/2006 |
| J Jill Group Inc. |
| Catalog Retail |
| Talbots |
| $ | 505.7 |
| 1.16 x |
| 14.9 x |
| 33.0 x |
| 7.8% |
| 24.6% |
| 23.8% |
| 24.9% |
|
12/4/2005 |
| 2/9/2006 |
| Provide Commerce |
| Internet Retail |
| Liberty Media Group |
| $ | 400.7 |
| 2.18 x |
| 23.5 x |
| 28.5 x |
| 9.6% |
| 16.6% |
| 16.5% |
| 45.1% |
|
12/1/2005 |
| 12/1/2005 |
| SkyMall Inc. |
| Catalog Retail |
| Spire Capital Partners Consortium |
| $ | 52.0 |
| 1.10 x |
| NA |
| 7.4 x |
| NA |
| NA |
| NA |
| NA |
|
5/19/2005 |
| 6/2/2005 |
| Crosstown Traders |
| Internet Retail |
| Charming Shoppes Inc. |
| $ | 258.7 |
| 0.56 x |
| NA(2) |
| NA |
| NA |
| NA |
| NA |
| NA |
|
3/1/2005 |
| 4/1/2005 |
| Cornerstone Brands, Inc. |
| Catalog Retail |
| IAC/InterActive Corp. |
| $ | 715.0 |
| 1.00 x |
| 10.8 x |
| 12.1 x |
| 9.2% |
| NA |
| NA |
| NA |
|
6/29/2004 |
| 6/29/2004 |
| Golf Warehouse, The |
| Internet Retail |
| Sportman’s Guide Inc. |
| $ | 30.0 |
| 0.66 x |
| NA |
| NA |
| NA |
| NA |
| NA |
| NA |
|
7/31/2003 |
| 9/3/2003 |
| dELiA*s |
| Catalog Retail |
| Alloy Inc. |
| $ | 51.7 |
| 0.37 x |
| NMF |
| NMF |
| NMF |
| NA |
| NA |
| NA |
|
4/16/2003 |
| 7/3/2003 |
| Lillian Vernon Corp. |
| Catalog Retail |
| Ripplewood Holdings LLC |
| $ | 40.1 |
| 0.17 x |
| NMF |
| NMF |
| NMF |
| 72.6% |
| 74.7% |
| 71.0% |
|
3/10/2003 |
| 4/2/2003 |
| Miles Kimball Company |
| Catalog Retail |
| Blyth, Inc. |
| $ | 65.0 |
| 0.54 x |
| NA |
| NA |
| NA |
| NA |
| NA |
| NA |
|
5/13/2002 |
| 6/17/2002 |
| Land’s End |
| Catalog Retail |
| Sears Roebuck & Co. |
| $ | 1,793.7 |
| 1.12 x |
| 11.2 x |
| 13.8 x |
| 9.1% |
| 21.5% |
| 23.2% |
| 27.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
|
|
|
|
|
|
|
| $ | 30.0 |
| 0.17 x |
| 10.8 x |
| 7.4 x |
| 6.9% |
| 14.8% |
| 16.5% |
| 18.8% |
|
High |
|
|
|
|
|
|
|
|
| $ | 1,793.7 |
| 2.18 x |
| 23.5 x |
| 33.0 x |
| 9.6% |
| 72.6% |
| 74.7% |
| 71.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median |
|
|
|
|
|
|
|
|
| $ | 161.9 |
| 0.93 x |
| 13.6 x |
| 14.2 x |
| 9.1% |
| 21.5% |
| 23.2% |
| 27.9% |
|
Mean |
|
|
|
|
|
|
|
|
| $ | 391.3 |
| 0.89 x |
| 14.8 x |
| 18.2 x |
| 8.5% |
| 30.0% |
| 31.2% |
| 37.5% |
|
|
|
• | The above transactions generally reflect acquisition of companies with better margins and more scale than Hanover. Therefore, comparability may not be appropriate. |
|
|
1 | Transactions with announcement dates between 2002 – 2006 for which purchase price multiples were available were considered. Sources included Securities Data Company, Mergerstat, and public filings. |
|
|
2 | Forward EBITDA multiple was estimated to be in the range of 6-7 times based on press releases. |
21
Draft/Confidential
Valuation Implications
|
ACQUISITION PREMIUM ANALYSIS |
|
|
Acquisition Premium Analysis 1 |
|
Premium |
|
|
|
|
| |
| ||
1 | Based on 13e3 transactions filings with SEC for the period of 2004 - 2006, and 2002 - 2006 comparable M&A transactions. |
22
Draft/Confidential
Valuation Implications
|
ACQUISITIONPREMIUMANALYSIS(CONTINUED) |
|
13e3 Transaction Premium Analysis 2004-2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median Value of |
| Median Offer Price |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| Median Premium | |||||||||||
|
|
|
|
| 1-Day |
| 5-Day |
| 20-Day | |||||||
|
|
|
|
|
|
| ||||||||||
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Overall |
| $ | 3.6 |
| $ | 8.94 |
|
| 14.9 | % |
| 15.2 | % |
| 16.5 | % |
2006 |
| $ | 299.5 |
| $ | 20.10 |
|
| 13.0 | % |
| 14.2 | % |
| 15.3 | % |
2005 |
| $ | 2.2 |
| $ | 9.50 |
|
| 20.8 | % |
| 22.8 | % |
| 19.9 | % |
2004 |
| $ | 5.1 |
| $ | 7.00 |
|
| 12.8 | % |
| 13.2 | % |
| 13.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1-Day High |
| 1-Day Low |
| 5-Day High |
| 5-Day Low |
| 20-Day High |
| 20-Day Low | ||||||
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Overall |
|
| 160.0 | % |
| (72.6% | ) |
| 137.4 | % |
| (75.0% | ) |
| 205.4 | % |
| (74.9% | ) |
2006 |
|
| 115.4 | % |
| (1.1% | ) |
| 76.6 | % |
| 0.1% |
| 82.8 | % |
| 0.2% | ||
2005 |
|
| 160.0 | % |
| (43.2% | ) |
| 137.4 | % |
| (41.7% | ) |
| 154.4 | % |
| (44.1% | ) |
2004 |
|
| 137.0 | % |
| (72.6% | ) |
| 137.0 | % |
| (75.0% | ) |
| 205.4 | % |
| (74.9% | ) |
|
|
Total Number of Transactions | 177 |
Transactions with Disclosed Detail | 169 |
| |
23
Draft/Confidential
Valuation Implications
|
ACQUISITIONPREMIUMANALYSIS(CONTINUED) |
|
13e3 Transaction Premium Analysis 2004-2006 (by Size) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median Premium | |||||||
|
|
| ||||||||
Transaction Value |
|
| 1-Day |
| 5-Day |
| 20-Day | |||
|
|
|
| |||||||
Under $10MM |
|
| 16.9 | % |
| 15.4 | % |
| 16.5 | % |
$10 - $100MM |
|
| 15.1 | % |
| 14.2 | % |
| 13.8 | % |
Over $100MM |
|
| 13.3 | % |
| 13.1 | % |
| 16.5 | % |
|
|
|
|
| ||||||
TOTAL |
|
| 14.9 | % |
| 15.2 | % |
| 16.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1-Day High |
| 1-Day Low |
| 5-Day High |
| 5-Day Low |
| 20-Day High |
| 20-Day Low | ||||||
|
|
|
|
|
|
|
| ||||||||||||
Under $10MM |
|
| 160.0 | % |
| (72.6% | ) |
| 137.4 | % |
| (75.0% | ) |
| 205.4 | % |
| (74.9% | ) |
$10 - $100MM |
|
| 111.8 | % |
| (1.1% | ) |
| 116.9 | % |
| (1.7% | ) |
| 154.4 | % |
| (7.8% | ) |
Over $100MM |
|
| 58.4 | % |
| (0.6% | ) |
| 57.4 | % |
| 0.1% |
| 46.7 | % |
| (0.9% | ) | |
|
|
|
|
|
|
|
| ||||||||||||
TOTAL |
|
| 160.0 | % |
| (72.6% | ) |
| 137.4 | % |
| (75.0% | ) |
| 205.4 | % |
| (74.9% | ) |
| |||||||||||||||||||
24
Draft/Confidential
Valuation Implications
|
PREMIUM/ DISCOUNTANALYSIS |
|
|
|
|
|
|
|
|
|
|
Chelsey Offer Price |
|
| $ 1.25 |
| |||||
|
|
|
|
|
|
|
| ||
Trading |
| Closing |
| Premium/ |
| ||||
|
|
| |||||||
| |||||||||
1 Day |
|
| $ | 2.55 |
|
| -51.0 | % |
|
|
|
|
|
|
|
|
|
|
|
5 Day |
|
| $ | 2.80 |
|
| -55.4 | % |
|
|
|
|
|
|
|
|
|
|
|
1 Month |
|
| $ | 2.46 |
|
| -49.2 | % |
|
|
Stock Price Pre Announcement1 |
|
|
|
|
|
1 | Based on Pre Announcement date 2/24/2006. Houlihan Lokey is not indicating that the Pre Announcement price reflects fair value due to the lack of sufficient trading level in Hanover’s stock. |
25
Draft/Confidential
Valuation Implications
|
PREMIUM / DISCOUNT ANALYSIS (CONTINUED) |
|
|
|
|
|
|
|
|
|
|
Chelsey Offer Price |
| $ 1.25 |
| ||||||
|
|
|
|
|
|
|
| ||
Trading |
| Average Closing |
| Premium/ |
| ||||
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
1 Day |
|
| $ | 2.55 |
|
| -51.0 | % |
|
|
|
|
|
|
|
|
|
|
|
5 Day |
|
| $ | 2.65 |
|
| -52.9 | % |
|
|
|
|
|
|
|
|
|
|
|
1 Month |
|
| $ | 2.71 |
|
| -53.9 | % |
|
|
|
|
|
|
|
|
|
|
|
3 Months |
|
| $ | 1.93 |
|
| -35.3 | % |
|
|
|
|
|
|
|
|
|
|
|
6 Months |
|
| $ | 1.54 |
|
| -18.7 | % |
|
|
|
|
|
|
|
|
|
|
|
1 Year |
|
| $ | 1.23 |
|
| 1.8 | % |
|
|
Average Stock Price1 |
|
|
|
|
|
1 | Based on Pre Announcement date 2/24/2006. Houlihan Lokey is not indicating that the Pre Announcement price reflects fair value due to the lack of sufficient trading level in Hanover’s stock. |
26
Draft/Confidential
Valuation Implications
|
STOCKPRICEDISTRIBUTION |
|
Stock Price Distribution Pre Announcement1 (Days) |
|
|
|
|
|
1 | For the 12 months period of 2/25/05-2/24/06. |
27
Draft/Confidential
Valuation Implications
|
STOCKPRICEDISTRIBUTION(CONTINUED) |
|
Stock Price Distribution Pre Announcement1 (Volume) |
|
|
|
|
|
1 | For the 12 month period of 2/25/05-2/24/06. |
28
Draft/Confidential
Valuation Implications
|
PREFERRED STOCK VALUE |
|
Chelsey Preferred Stock Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(figures in millions, except per share data) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Liquidation Preference(1) |
|
|
|
|
|
|
|
| $56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PIK Dividend Rate |
|
| 1/1/2006 |
|
| 7.0% |
|
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2007 |
|
| 8.5% |
|
|
|
|
|
|
|
|
|
|
|
|
| 1/1/2008 |
|
| 10.0% |
|
|
|
|
|
|
|
|
|
|
Mandatory Redemption |
|
| 1/1/2009 |
|
|
|
|
| $72.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required Yield(2) |
|
|
|
|
|
|
|
| 12.0 | % |
| — |
|
| 8.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Value |
|
|
|
|
|
|
|
| $50.9 |
|
| — |
|
| $57.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Common Value Accretion |
|
|
|
|
|
|
|
| $0.20 |
|
| — |
|
| NA |
|
|
|
|
|
|
1 | As of 3/31/06 Preferred Stock liquidation preference, plus accrued dividends is $57.5 million. |
| |
2 | Required yield assumption based on synthetic credit rating analysis. |
29
Draft/Confidential
Valuation Implications
|
LEVERAGE |
|
|
• | The Company currently has a LTM leverage ratio of 1.8x1. |
|
|
• | Given the current credit environment, the Company potentially has additional debt capacity: |
|
LBO Statistics2 |
|
|
|
|
|
1 | Based on total debt of $30.3 million and EBITDA of $16.5 million (without public company cost savings addback). |
| |
2 | Standard & Poor’s Q4 2005 Leveraged Buyout Review |
| |
3 | Includes Preferred Stock dividend and assumes it is paid in cash; excludes amortization of debt discount. |
30
Draft/Confidential
Valuation Implications
|
|
|
|
|
|
LEVERAGE (CONTINUED) | |||||
|
|
|
|
|
|
• | Chelsey could potentially purchase all of the minority stockholders without contributing any equity, by accessing into Hanover’s existing debt capacity: | ||||
|
|
|
|
|
|
Potential Debt Transaction1 |
|
|
|
| |
|
|
|
|
| |
(in millions, except per share data) |
|
|
|
| |
|
|
|
|
| |
3/06 LTM Adjusted EBITDA with addbacks(2) |
| $ | 17.1 |
| |
Assumed Leverage Ratio |
|
| 4.0 | x | |
|
|
| |||
Total Debt Assumed |
| $ | 68.3 |
| |
Less: Wachovia Maximum Revolver Limit |
|
| (34.5 | ) | |
Less: Wachovia Term Loan Outstanding |
|
| (2.3 | ) | |
Less: Chelsey Loan |
|
| (20.0 | ) | |
|
|
| |||
Residual Proceeds |
| $ | 11.5 |
| |
|
|
|
|
| |
Number of Public Shares(3) |
|
| 7.1 |
| |
|
|
|
|
| |
Implied Payout of Chelsey |
| $ | 1.62 |
| |
|
|
|
|
| |
|
|
|
|
| |
1 | In this scenario, we assume Chelsey’s Preferred Stock remains outstanding and that approvals from the Company’s lenders are received. | |
|
| |
2 | Includes $0.6 million of public company cost savings. | |
|
| |
3 | Includes in-the-money options (excludes Chelsey’s) based on treasury method. |
31
Draft/Confidential
Valuation Implications
|
|
|
REALESTATE | ||
|
|
|
• | The Company has the following properties which are substantially mortgage free: | |
|
| |
| • | A 775,000 sq. ft. warehouse and fulfillment facility in Roanoke, Virginia |
|
|
|
| • | A 48,000 sq. ft. administrative and telemarketing facility located in LaCrosse, Wisconsin |
|
|
|
| • | A 150,000 sq. ft. home fashion manufacturing facility located in LaCrosse, Wisconsin |
|
|
|
• | According to an appraisal report as of May 19, 2003, real estate value was $40.5 million. | |
|
| |
| • | An updated appraisal report will provide a better picture of any hidden real estate value. |
|
|
|
• | The Company may be able to refinance its loan due to Chelsey1 with commercial mortgage loan, potentially lowering its interest expenses. |
|
|
|
|
| |
1 | Chelsey Loan is at Prime + 5%. |
32
Draft/Confidential
Valuation Implications
|
REALESTATE(CONTINUED) |
|
|
• | Potential sale leaseback transaction may result in the following: |
|
|
|
Potential Sale Leaseback Transaction Impact1 |
|
|
|
|
|
|
|
|
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Transaction Amount(2) |
| $ | 20.0 |
|
|
|
|
Assumed Capitalization Rate |
|
| 8 | % |
|
|
|
Net Lease Payment |
| $ | 1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pre |
| Post |
| ||
|
| ||||||
3/06 LTM Adjusted EBITDA with addbacks(3) | $ | 17.1 |
|
| $ | 15.5 |
|
|
|
|
|
|
|
|
|
EV(assumed EBITDA Multiple @ 8.0x) | $ | 136.6 |
|
| $ | 123.8 |
|
Less: Net Debt (4) |
| (29.9 | ) |
|
| (9.9 | ) |
Less: Preferred Stock(5) |
| (57.5 | ) |
|
| (57.5 | ) |
|
| ||||||
Equity Value | $ | 49.2 |
|
| $ | 56.4 |
|
|
|
|
|
|
|
|
|
Shares Outstanding(6) |
| 32.7 |
|
|
| 32.7 |
|
|
|
|
|
|
|
|
|
Price per Share | $ | 1.50 |
|
| $ | 1.72 |
|
|
|
|
|
|
|
|
|
Increase in Price |
|
|
|
|
| 14.6 | % |
|
|
|
|
|
|
1 | Assumes sale leaseback proceeds are utilized to repay debt, subject to existing lenders’ approval. |
|
|
2 | Based on indication from W.P.Carey in 2003. |
|
|
3 | Includes $0.6 million of public company cost savings. |
|
|
4 | In calculating Net Debt, average Revolver balance for the past four quarters is used. |
|
|
5 | As of 3/31/06 Preferred Stock liquidation preference, plus accrued dividends is $57.5 million. |
|
|
6 | Includes in-the-money options based on treasury method. |
33
Draft/Confidential
Valuation Implications
|
SUMMARY OFVALUATIONIMPLICATIONS |
|
|
• | The range of EBITDA multiples |
|
|
• | The adjusted EBITDA level (including public company costs and other potential add-backs) |
|
|
• | The value of the Series C Preferred Stock |
|
|
• | Debt capacity may be under utilized |
|
|
• | Hidden real estate value, if any |
|
|
• | Status quo implications |
|
|
34
Draft/Confidential
Draft/Confidential
Deal Structure
|
STRUCTURALPOINTS |
|
|
|
|
|
| Issues |
|
| Considerations |
• | Clarity on Proposed Transaction |
| • | Long form merger; or tender offer followed by short form merger? |
• | Offer Price |
| • | Initial bid is apparently too low. The market has run past the Offer Price |
• | Re:Pure Resources |
| • | Offer subject to majority of the minority (total unaffiliated shareholders or majority of the votes?) |
|
|
| ||
In this precedent court case, the framework has been established to allow tender offer to be non-coercive |
| • | Binding agreement to consummate short form merger if greater than 90% achieved (assuming no orphans left) | |
• | Assurance of ability to consummate |
| • | Availability of third party financing |
|
|
| • | Ability of Chelsey to complete Transaction without a third party |
36
Draft/Confidential
|
Stock Chart |
|
HISTORICALPRICEVOLUMEPERFORMANCE |
|
|
Hanover Direct Inc. | Last: $1.40 |
30-Sep-2004 to 04-May-2006 | High: $3.00 |
Prices in USD; Volume in millions | Low: $0.25 |
|
|
(1) | Hanover Announces the Filing of a Form 12b-25 Notification of Late Filing With the SEC |
|
|
(2) | Hanover Announces Notice of Potential Delisting From American Stock Exchange |
|
|
(3) | Basil Regan sells approximately 3.8 million shares to Chelsey at $1 per share in a private transaction |
|
|
(4) | Hanover Announces Notice of Delisting From American Stock Exchange |
|
|
(5) | Hanover Announces Conclusion of Independent Investigation Regarding Restatements, Resignation of Chief Financial Officer |
|
|
(6) | Hanover Announces Favorable Outcomes in Three Litigations |
|
|
(7) | Hanover Replaces KPMG LLP with Goldstein Golub & Kessler LLP as its Principal Independent Auditors |
|
|
(8) | Hanover Reports Preliminary Results for the Fourth Quarter and Guidance for the Fiscal Year Ended December 31, 2005 |
|
|
(9) | Hanover Receives Going Private Proposal |
|
|
(10) | Hanover Files Fiscal Year End 2005 10-K |
38
|
|
MAY 24, 2006 | Hanover Direct, Inc. |
Draft/Confidential | Updated Discussion Materials with |
Houlihan Lokey Howard & Zukin
245 Park Avenue
New York, NY 10167
212-497-4100
www.hlhz.com
New York Los Angeles Chicago San Francisco Washington D.C. Minneapolis Dallas Atlanta London Paris Frankfurt
Draft/Confidential
|
|
Table of Contents | |
|
|
| Tab |
| |
|
|
1 | |
|
|
2 | |
|
|
3 |
i
Draft/Confidential
Draft/Confidential
Process
|
|
|
SUMMARY OFDUEDILIGENCEPERFORMED | ||
| ||
In preparing our preliminary findings, we have: | ||
|
| |
• | Reviewed historical financial information | |
|
|
|
• | Reviewed the 2006 internal financial budget, (“Old Budget”) for the Company prepared by management, dated March 13, 2006. | |
|
|
|
• | Reviewed the 2006 revised financial forecast (“Revised Budget”) for the Company prepared by management, received on May 18, 2006. | |
|
|
|
• | Reviewed the 2006 first quarter financial results of the Company prepared by management | |
|
|
|
• | Reviewed various operational and financial analyses prepared by management | |
|
|
|
• | Held various meetings and discussions with members of the senior management of the Company (Wayne Garten, John Swatek, Charlie Pellenberg, Neil Mulhall) regarding their assessment of the past and current business operations, financial condition and future prospects (2006) of the Company | |
|
|
|
• | Reviewed the reported price and trading activity for the common stock of the Company | |
|
|
|
• | Compared financial and stock market information for the Company with similar information with respect to the securities of other publicly traded companies | |
|
|
|
• | Reviewed the financial terms of recent business combinations in the catalog/internet retail industry | |
|
|
|
• | Reviewed selected going private transactions | |
|
|
|
• | Reviewed the rights and privileges of the Company’s Series C Preferred Stock | |
|
|
|
• | Reviewed preferred stock yields for companies with similar credit statistics as Hanover |
1
Draft/Confidential
Draft/Confidential
|
|
Financial Performance and Projections | |
| |
FINANCIAL PERFORMANCE1 | |
|
|
• | After the disappointing FY 2003, Hanover has experienced healthier revenue growth and profitability in FY 2004 and FY 2005. |
|
Revenue |
|
($ in Millions) |
|
EBITDA & EBITDA Margin |
|
($ in Millions) |
|
|
|
|
|
1 | EBITDA and EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings addback. Source: Form 10-K and Management. |
| |
2 | The Revised Budget was received on May 18, 2006. |
3
Draft/Confidential
|
| |
Financial Performance and Projections | ||
| ||
2006 BUDGET | ||
|
|
|
• | The Company has not prepared projections beyond its 2006 budget. |
| |
• | The Company’s initial budget projected a decline in EBITDA for 2006. The EBITDA margin1 for 2005 was 4.6% and was originally budgeted to decrease to 3.8% for 2006. Management had indicated that there were several reasons for such a decline: |
| • | Global Sourcing Initiatives: To lower merchandising costs and improve product mix, Hanover plans to hire additional personnel in the U.S. to source from the Far East. As a result, the travel and entertainment expenses are projected to increase by approximately $0.69 million. |
|
|
|
| • | E-Commerce Capability: Hanover’s Internet sales have experienced a much higher growth rate than the traditional mail order catalog (23.9% vs. 2.0% in FY 2005). The Company plans to invest more resources to enhance its e-commerce platform. |
|
|
|
| • | Additional Headcount: Hanover has projected to add headcount in the Human Resources and Finance functions. Overall, the Company will incur an additional $2.23 million in payroll and $0.79 million in fringe benefits. |
|
|
|
| • | Paper, Printing and Postage: The Company projected an increase of $7.6 million in Catalog/Advertising cost attributed mainly to increase in paper and printing costs, as well as to the USPS postage. |
|
|
|
| |
1 | EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings add-back. Source: Form 10-K and Management. |
4
Draft/Confidential
Financial Performance and Projections
|
POTENTIALADJUSTMENTS |
|
|
• | Below is a list of costs that may be adjusted either because of their one-time nature, or the expenses will bring long term benefits to the Company: |
|
|
Potential Adjustments in 2006 | |
| |
(figures in millions) |
|
|
|
Information Systems | $0.4 |
Global Sourcing Related Increase | $0.7 |
Increase in Payroll (excl. reclass) | $2.2 |
Increase in Fringe | $0.8 |
| |
| $4.1 |
|
|
• | Information Systems: consists of increase in payroll and fringe benefits for additional positions. |
|
|
• | Global Sourcing: incremental travel and entertainment expenses related to the Global Sourcing Initiatives discussed. |
|
|
• | Fringe and Payroll: increase headcount in Human Resources, Finance and E-Commerce departments. |
5
Draft/Confidential
Financial Performance and Projections
|
FINANCIALPERFORMANCE– 2006 Q1 |
|
|
• | Although lower than 2005, the 2006 first quarter results exceeded the Old Budget. |
|
Revenue |
($ in Millions)
|
EBITDA & EBITDA Margin1 |
($ in Millions)
|
|
|
|
|
|
1 | Old Budget EBITDA includes $0.18 million of severance adjustments. 2006 Q1 EBITDA and EBITDA margins are adjusted for one-time non-recurring items, but do not include public company cost savings addback. |
6
Draft/Confidential
Financial Performance and Projections
|
2006 REVISEDFORECAST |
|
|
|
• | The Company has recently revised its 2006 forecast. Revised Budget EBITDA is forecasted to decline 21% compared to the old budget, or 32% compared to the 2005 result. |
|
EBITDA1 |
|
|
|
• | Management cited the following reasons for the revised forecast: | |
|
| |
| • | Lackluster performance of the flagship catalogThe Company Storeand poor performance of catalogs of theTotal Men’s |
|
|
|
| • | Lower than expected ramp up rate on the new Encore membership program |
|
|
|
| • | The bankruptcy and eventual liquidation of APX Logistics, one of the indirect contract carriers of the Company, cost the Company $0.1 million more per week in postage expense |
|
|
|
|
|
|
1 | EBITDA is adjusted for one-time non-recurring items, but does not include public company cost savings addback. |
7
Draft/Confidential
Financial Performance and Projections
|
REPRESENTATIVELEVELS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(figures in thousands) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Old |
| Revised |
| Old |
| Revised |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Fiscal Year Ended |
|
|
|
| LTM |
| Budget |
| Budget |
|
|
| ||||||||||||
|
| 12/31/03 |
| 12/31/04 |
| 12/31/05 |
| 03/31/06 |
| 12/31/06 |
| 12/31/06 |
| 12/31/06 |
| 12/31/06 |
|
| ||||||||
|
|
|
|
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|
|
| |||||||||||||||||||
| ||||||||||||||||||||||||||
Reported Revenue |
| $ | 370.1 |
| $ | 360.5 |
| $ | 407.4 |
| $ | 418.0 |
| $ | 428.3 |
| $ | 424.3 |
| $ | 428.3 |
| $ | 424.3 |
|
|
Revenue Growth% |
|
|
|
|
| -2.6 | % |
| 13.0 | % |
|
|
|
| 5.1 | % |
| 4.1 | % |
| 5.1 | % |
| 4.1 | % |
|
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|
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|
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|
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|
|
|
|
|
|
|
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|
|
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|
|
|
Less: Cost of Goods Sold |
| $ | 233.6 |
| $ | 216.9 |
| $ | 253.0 |
| $ | 262.3 |
| $ | 262.4 |
|
|
|
| $ | 262.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross Profit |
| $ | 136.5 |
| $ | 143.6 |
| $ | 154.5 |
| $ | 155.8 |
| $ | 165.8 |
|
|
|
| $ | 165.8 |
|
|
|
|
|
Less: Selling, General & Administrative |
| $ | 136.5 |
| $ | 134.6 |
| $ | 137.4 |
| $ | 140.3 |
| $ | 152.6 |
|
|
|
| $ | 152.6 |
|
|
|
|
|
Less: Special Charges |
| $ | 0.2 |
| $ | 1.7 |
| ($ | 0.1 | ) | ($ | 0.1 | ) | $ | 0.0 |
|
|
|
| $ | 0.0 |
|
|
|
|
|
Add: Depreciation and Amortization |
| $ | 4.1 |
| $ | 3.3 |
| $ | 2.9 |
| $ | 2.7 |
| $ | 2.4 |
|
|
|
| $ | 2.4 |
|
|
|
|
|
Add: Adjustments(1) |
| $ | 4.6 |
| $ | 5.9 |
| ($ | 1.1 | ) | ($ | 1.7 | ) | $ | 0.8 |
| $ | 1.8 |
| $ | 4.9 |
| $ | 5.9 |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| ||||||||||||||||||||||||||
Adjusted EBITDA |
| $ | 8.6 |
| $ | 16.5 |
| $ | 18.9 |
| $ | 16.5 |
| $ | 16.4 |
| $ | 12.9 |
| $ | 20.5 |
| $ | 17.0 |
|
|
EBITDA Margin% |
|
| 2.3 | % |
| 4.6 | % |
| 4.6 | % |
| 3.9 | % |
| 3.8 | % |
| 3.0 | % |
| 4.8 | % |
| 4.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and Amortization |
| $ | 4.1 |
| $ | 3.3 |
| $ | 2.9 |
| $ | 2.7 |
| $ | 2.4 |
|
|
|
| $ | 2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| ||||||||||||||||||||||||||
Adjusted EBIT |
| $ | 4.5 |
| $ | 13.2 |
| $ | 16.0 |
| $ | 13.8 |
| $ | 14.0 |
|
|
|
| $ | 18.1 |
|
|
|
|
|
EBIT Margin% |
|
| 1.2 | % |
| 3.7 | % |
| 3.9 | % |
| 3.3 | % |
| 3.3 | % |
|
|
|
| 4.2 | % |
|
|
|
|
|
|
|
|
|
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|
|
Footnotes: |
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|
|
|
|
|
(1) Adjustments: |
|
|
|
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|
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|
|
Operating One-Time Charges/(Gains) |
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Severance and Termination Costs |
| $ | 0.7 |
| $ | 2.6 |
| $ | 0.8 |
| $ | 1.5 |
|
| $ | 0.0 |
| $ | 1.2 |
|
Special Charges / Restructuring Related Charges |
| $ | 1.3 |
| $ | 1.5 |
| ($ | 0.1 | ) | ($ | 0.1 | ) |
| $ | 0.7 |
| $ | 0.0 |
|
Facility Exit Costs |
| $ | 0.0 |
| $ | 0.2 |
| $ | 0.0 |
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 0.0 |
|
Compensation Continuation Agreement Costs |
| $ | 3.1 |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 0.0 |
|
Change in Vacation / Sick Policy |
| ($ | 1.6 | ) | $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 0.0 |
|
Going Private |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.2 |
|
| $ | 0.0 |
| $ | 0.5 |
|
Shareholder Relation Fees |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
| ($ | 0.0 | ) |
| $ | 0.0 |
| $ | 0.0 |
|
Severance - Former Employee’s Litigation |
| $ | 0.0 |
| $ | 0.0 |
| $ | 0.0 |
| ($ | 0.2 | ) |
| $ | 0.0 |
| $ | 0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Adjustsments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal and Audit Fees related to Restatement |
| $ | 0.0 |
| $ | 0.6 |
| $ | 2.6 |
| $ | 1.2 |
|
| $ | 0.0 |
| $ | 0.0 |
|
Class Action Litigation Reserve |
| $ | 0.0 |
| $ | 0.5 |
| $ | 0.0 |
| $ | 0.0 |
|
| $ | 0.0 |
| $ | 0.0 |
|
Rakesh Kaul Accrual |
| $ | 0.0 |
| $ | 0.2 |
| ($ | 4.5 | ) | ($ | 4.5 | ) |
| $ | 0.0 |
| $ | 0.0 |
|
Compensation Expenses Related to Stock Options |
| $ | 1.1 |
| $ | 0.2 |
| $ | 0.1 |
| $ | 0.1 |
|
| $ | 0.1 |
| $ | 0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
| $ | 4.6 |
| $ | 5.9 |
| ($ | 1.1 | ) | ($ | 1.7 | ) |
| $ | 0.8 |
| $ | 1.8 |
|
|
|
|
|
|
Potential Cost Adjustments |
|
|
|
|
Information Systems |
| $ | 0.4 |
|
Global Sourcing Related Incre |
| $ | 0.7 |
|
Increase in Payroll (excl. recla |
| $ | 2.2 |
|
Increase in Fringe |
| $ | 0.8 |
|
|
|
|
|
|
|
|
| ||
|
| $ | 4.1 |
|
8
Draft/Confidential
Financial Performance and Projections
|
PUBLICCOMPANYCOSTSAVINGS |
|
|
• | The current costs of being a public company are $1.8 million. Management believes these costs could be reduced to $1.2 million if the Company goes private. |
|
Public Company Cost Savings |
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
| Public |
| Private |
| Savings |
| |
|
|
|
|
| ||||
Directors Fees |
| $0.3 |
| $0.2 | (1) |
| ($0.2) |
|
| ||||||||
D&O Insurance |
| $0.4 |
| $0.4 | (2) |
| $0.0 |
|
| ||||||||
Listing Fees and Transfer Fees |
| $0.1 |
| $0.0 |
|
| ($0.1) |
|
| ||||||||
Press Release/Investor Relations/Proxy |
| $0.1 |
| $0.1 | (3) |
| ($0.1) |
|
| ||||||||
Legal Fees - SEC Compliance External Counsel |
| $0.1 |
| $0.0 |
|
| ($0.1) |
|
| ||||||||
Audit Fees |
| $0.4 |
| $0.3 | (4) |
| ($0.1) |
|
| ||||||||
Internal Legal Costs |
| $0.2 |
| $0.1 | (5) |
| ($0.1) |
|
| ||||||||
Internal Accounting Costs |
| $0.2 |
| $0.2 | (6) |
| $0.0 |
|
|
|
|
|
| ||||
| ||||||||
Total Costs |
| $1.8 |
| $1.2 |
|
| ($0.6) |
|
|
|
|
|
|
|
|
|
|
| ||||||||
(1) Assumes an Advisory Board 3 members vs 6 today | ||||||||
| ||||||||
(2) D&O insurance will need a tail policy for next 4 - 5 years so no incremental savings currently | ||||||||
| ||||||||
(3) Reduction for Proxy and Other Quarterly Filings however still a need for vendor relations press releases | ||||||||
| ||||||||
(4) Eliminate SEC filings however still a need for auaudits and reviews on a quarterly basis | ||||||||
| ||||||||
(5) Eliminate internal legal work on SEC filings | ||||||||
| ||||||||
(6) Continued need for reporting to management and owners |
|
|
|
• | In addition, if the Company remains public, it will have to spend approximately additional $0.75-$1.0 million starting from 2007 in order to be Sarbane-Oxley compliant. |
|
|
• | In 2007, the savings would be in the range of $1.35 - $1.6 million, or approximately $1.5 million on average. |
9
Draft/Confidential
Draft/Confidential
|
|
Valuation Implications |
|
CHELSEYOFFER |
(figures in millions, except per share data)
|
|
|
|
|
Chelsey Offer Price |
| $ | 1.25 |
|
Shares Outstanding (1) |
|
| 32.7 |
|
|
|
| ||
Equity Value |
| $ | 40.9 |
|
Add: Net Debt(2) |
|
| 30.3 |
|
Add: Preferred Stock(3) |
|
| 57.5 |
|
|
|
| ||
Enterprise Value |
| $ | 128.6 |
|
|
|
|
|
|
2005 Adjusted EBITDA(4) |
| $ | 19.5 |
|
Implied 2005 EBITDA Multiple |
|
| 6.6x |
|
|
|
|
|
|
3/06 LTM Adjusted EBITDA(4) |
| $ | 17.1 |
|
Implied 3/06 LTM EBITDA Multiple |
|
| 7.5x |
|
|
|
|
|
|
2006 Adjusted EBITDA per Old Budget(4) |
| $ | 17.0 |
|
Implied 2006 EBITDA Multiple |
|
| 7.6x |
|
|
|
|
|
|
2006 Adjusted EBITDA per Revised Budget(4) |
| $ | 13.5 |
|
Implied 2006 EBITDA Multiple |
|
| 9.5x |
|
| |
Implied Multiple Analysis | |
| |
EBITDA Multiples |
|
|
|
|
1 | Includes in-the-money options based on treasury method. |
|
|
2 | In calculating Net Debt, average Revolver balance for the past four quarters is used. |
|
|
3 | Liquidation preference plus accrued dividends as of 3/31/06. |
|
|
4 | Includes public company cost savings of $0.6 million. Source: Management. |
|
|
5 | Comparable companies include: Charming Shoppes, Blyth and Alloy. |
11
Draft/Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED – 2005 ACTUAL |
|
(figures in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
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|
|
| |
2005 Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ 18.9 |
|
|
|
|
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| ||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||||||
|
| Public Company Costs/Savings |
|
| $ | 1.5 |
|
|
| Public Company Costs |
|
| $ | 0.6 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
|
| |||||||||||||||||||||||||
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| |||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 20.4 |
|
|
| EBITDA |
|
| $ | 19.5 |
|
|
| EBITDA |
|
| $ | 18.9 |
|
| |||||||||||||||||||||||||
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| |||||||||||||||||||||||||
|
| EBITDA |
| Implied Price |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
| ||||||||||||||||||||||||||||
|
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| |||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 6.3x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 6.6x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 6.8x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
| |
|
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| |||||||||||||||||||||||||||||||||||||||||||
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| 6.0x |
|
|
| $ | 1.07 |
|
|
| $ | 7.5 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.90 |
|
|
| $ | 6.3 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.79 |
|
|
| $ | 5.6 |
|
| |
|
|
|
| 6.5x |
|
|
| $ | 1.38 |
|
|
| $ | 9.7 |
|
|
|
|
| 6.5x |
|
|
| $ | 1.20 |
|
|
| $ | 8.5 |
|
|
|
|
| 6.5x |
|
|
| $ | 1.08 |
|
|
| $ | 7.6 |
|
| |
|
|
|
| 7.0x |
|
|
| $ | 1.69 |
|
|
| $ | 11.9 |
|
|
|
|
| 7.0x |
|
|
| $ | 1.50 |
|
|
| $ | 10.6 |
|
|
|
|
| 7.0x |
|
|
| $ | 1.37 |
|
|
| $ | 9.7 |
|
| |
|
|
|
| 7.5x |
|
|
| $ | 2.00 |
|
|
| $ | 14.1 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.80 |
|
|
| $ | 12.7 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.66 |
|
|
| $ | 11.7 |
|
| |
|
|
|
| 8.0x |
|
|
| $ | 2.31 |
|
|
| $ | 16.4 |
|
|
|
|
| 8.0x |
|
|
| $ | 2.09 |
|
|
| $ | 14.8 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.95 |
|
|
| $ | 13.8 |
|
| |
|
|
|
| 8.5x |
|
|
| $ | 2.63 |
|
|
| $ | 18.6 |
|
|
|
|
| 8.5x |
|
|
| $ | 2.39 |
|
|
| $ | 16.9 |
|
|
|
|
| 8.5x |
|
|
| $ | 2.24 |
|
|
| $ | 15.8 |
|
| |
|
|
|
| 9.0x |
|
|
| $ | 2.94 |
|
|
| $ | 20.8 |
|
|
|
|
| 9.0x |
|
|
| $ | 2.69 |
|
|
| $ | 19.0 |
|
|
|
|
| 9.0x |
|
|
| $ | 2.53 |
|
|
| $ | 17.9 |
|
| |
|
|
|
| 9.5x |
|
|
| $ | 3.25 |
|
|
| $ | 23.0 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.99 |
|
|
| $ | 21.1 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.81 |
|
|
| $ | 19.9 |
|
| |
|
|
|
| 10.0x |
|
|
| $ | 3.56 |
|
|
| $ | 25.2 |
|
|
|
|
| 10.0x |
|
|
| $ | 3.28 |
|
|
| $ | 23.3 |
|
|
|
|
| 10.0x |
|
|
| $ | 3.10 |
|
|
| $ | 22.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
12
Draft/Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED – LTM 2006 |
|
(figures in millions, except share data) |
|
|
|
|
|
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|
|
|
|
|
|
|
| 3/06 LTM Adjusted EBITDA |
|
|
| $ 16.5 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
| Public Company Costs |
|
| $ | 1.5 |
|
|
| Public Company Costs |
|
| $ | 0.6 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
|
| ||||||||||||||||||||||||
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|
|
| ||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 18.0 |
|
|
| EBITDA |
|
| $ | 17.1 |
|
|
| EBITDA |
|
| $ | 16.5 |
|
| ||||||||||||||||||||||||
|
|
|
|
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|
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| ||||||||||||||||||||||||
|
| EBITDA |
| Implied Price |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public |
|
| EBITDA |
| Implied |
| Paid to Public |
| |||||||||||||||||||||||||||
|
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| ||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 7.1x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 7.8x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
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|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
| 6.0x |
|
|
| $ | 0.62 |
|
|
| $ | 4.4 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.45 |
|
|
| $ | 3.2 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.34 |
|
|
| $ | 2.4 |
|
|
|
|
|
| 6.5x |
|
|
| $ | 0.90 |
|
|
| $ | 6.3 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.72 |
|
|
| $ | 5.0 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.60 |
|
|
| $ | 4.2 |
|
|
|
|
|
| 7.0x |
|
|
| $ | 1.17 |
|
|
| $ | 8.3 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.98 |
|
|
| $ | 6.9 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.85 |
|
|
| $ | 6.0 |
|
|
|
|
|
| 7.5x |
|
|
| $ | 1.44 |
|
|
| $ | 10.2 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.24 |
|
|
| $ | 8.7 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.10 |
|
|
| $ | 7.8 |
|
|
|
|
|
| 8.0x |
|
|
| $ | 1.72 |
|
|
| $ | 12.1 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.50 |
|
|
| $ | 10.6 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.35 |
|
|
| $ | 9.5 |
|
|
|
|
|
| 8.5x |
|
|
| $ | 1.99 |
|
|
| $ | 14.1 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.76 |
|
|
| $ | 12.4 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.60 |
|
|
| $ | 11.3 |
|
|
|
|
|
| 9.0x |
|
|
| $ | 2.27 |
|
|
| $ | 16.0 |
|
|
|
|
| 9.0x |
|
|
| $ | 2.02 |
|
|
| $ | 14.3 |
|
|
|
|
| 9.0x |
|
|
| $ | 1.86 |
|
|
| $ | 13.1 |
|
|
|
|
|
| 9.5x |
|
|
| $ | 2.54 |
|
|
| $ | 18.0 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.28 |
|
|
| $ | 16.1 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.11 |
|
|
| $ | 14.9 |
|
|
|
|
|
| 10.0x |
|
|
| $ | 2.82 |
|
|
| $ | 20.0 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.54 |
|
|
| $ | 18.0 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.36 |
|
|
| $ | 16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
13
Draft/Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED – 2006 BUDGET |
|
(figures in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2006 Adjusted EBITDA per Budget |
|
|
| $ 16.4 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
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| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
| Public Company Costs |
|
| $ | 1.5 |
|
|
| Public Company Costs |
|
| $ | 0.6 |
|
|
| Public Company Costs |
|
| $ | 0.0 |
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 17.9 |
|
|
| EBITDA |
|
| $ | 17.0 |
|
|
| EBITDA |
|
| $ | 16.4 |
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
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|
|
|
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|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 7.2x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 7.6x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 7.8x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
| 6.0x |
|
|
| $ | 0.60 |
|
|
| $ | 4.2 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.44 |
|
|
| $ | 3.1 |
|
|
|
|
| 6.0x |
|
|
| $ | 0.33 |
|
|
| $ | 2.3 |
|
|
|
|
|
| 6.5x |
|
|
| $ | 0.88 |
|
|
| $ | 6.2 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.70 |
|
|
| $ | 4.9 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.58 |
|
|
| $ | 4.1 |
|
|
|
|
|
| 7.0x |
|
|
| $ | 1.15 |
|
|
| $ | 8.1 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.96 |
|
|
| $ | 6.7 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.83 |
|
|
| $ | 5.8 |
|
|
|
|
|
| 7.5x |
|
|
| $ | 1.42 |
|
|
| $ | 10.0 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.22 |
|
|
| $ | 8.6 |
|
|
|
|
| 7.5x |
|
|
| $ | 1.08 |
|
|
| $ | 7.6 |
|
|
|
|
|
| 8.0x |
|
|
| $ | 1.70 |
|
|
| $ | 12.0 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.47 |
|
|
| $ | 10.4 |
|
|
|
|
| 8.0x |
|
|
| $ | 1.33 |
|
|
| $ | 9.4 |
|
|
|
|
|
| 8.5x |
|
|
| $ | 1.97 |
|
|
| $ | 13.9 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.73 |
|
|
| $ | 12.2 |
|
|
|
|
| 8.5x |
|
|
| $ | 1.58 |
|
|
| $ | 11.1 |
|
|
|
|
|
| 9.0x |
|
|
| $ | 2.24 |
|
|
| $ | 15.8 |
|
|
|
|
| 9.0x |
|
|
| $ | 1.99 |
|
|
| $ | 14.1 |
|
|
|
|
| 9.0x |
|
|
| $ | 1.83 |
|
|
| $ | 12.9 |
|
|
|
|
|
| 9.5x |
|
|
| $ | 2.52 |
|
|
| $ | 17.8 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.25 |
|
|
| $ | 15.9 |
|
|
|
|
| 9.5x |
|
|
| $ | 2.08 |
|
|
| $ | 14.7 |
|
|
|
|
|
| 10.0x |
|
|
| $ | 2.79 |
|
|
| $ | 19.7 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.51 |
|
|
| $ | 17.8 |
|
|
|
|
| 10.0x |
|
|
| $ | 2.33 |
|
|
| $ | 16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
14
Draft/Confidential
Valuation Implications
|
PUBLICSHAREHOLDERCONSIDERATIONRECEIVED – 2006 REVISED BUDGET |
|
(figures in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2006 Adjusted EBITDA per Revised Budget |
|
|
| $ 12.9 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
|
| Public Company Cost Savings |
|
| $ | 1.5 |
|
|
| Public Company Cost Savings |
|
| $ | 0.6 |
|
|
| Public Company Cost Savings |
|
| $ | 0.0 |
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| EBITDA |
|
| $ | 14.4 |
|
|
| EBITDA |
|
| $ | 13.5 |
|
|
| EBITDA |
|
| $ | 12.9 |
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
|
| EBITDA |
| Implied |
| Paid to |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 8.9x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 9.5x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
| 10.0x |
|
|
| $ | 1.25 |
|
|
| $ | 8.8 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
|
|
| 6.0x |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
|
| 6.0x |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
|
| 6.0x |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
|
|
| 6.5x |
|
|
| $ | 0.18 |
|
|
| $ | 1.3 |
|
|
|
|
| 6.5x |
|
|
| $ | 0.00 |
|
|
| $ | 0.0 |
|
|
|
|
| 6.5x |
|
|
|
| NMF |
|
|
|
| NMF |
|
|
|
|
|
| 7.0x |
|
|
| $ | 0.40 |
|
|
| $ | 2.8 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.21 |
|
|
| $ | 1.5 |
|
|
|
|
| 7.0x |
|
|
| $ | 0.08 |
|
|
| $ | 0.6 |
|
|
|
|
|
| 7.5x |
|
|
| $ | 0.62 |
|
|
| $ | 4.4 |
|
|
|
|
| 7.5x |
|
|
| $ | 0.42 |
|
|
| $ | 2.9 |
|
|
|
|
| 7.5x |
|
|
| $ | 0.28 |
|
|
| $ | 2.0 |
|
|
|
|
|
| 8.0x |
|
|
| $ | 0.84 |
|
|
| $ | 5.9 |
|
|
|
|
| 8.0x |
|
|
| $ | 0.62 |
|
|
| $ | 4.4 |
|
|
|
|
| 8.0x |
|
|
| $ | 0.48 |
|
|
| $ | 3.4 |
|
|
|
|
|
| 8.5x |
|
|
| $ | 1.07 |
|
|
| $ | 7.5 |
|
|
|
|
| 8.5x |
|
|
| $ | 0.83 |
|
|
| $ | 5.8 |
|
|
|
|
| 8.5x |
|
|
| $ | 0.67 |
|
|
| $ | 4.8 |
|
|
|
|
|
| 9.0x |
|
|
| $ | 1.29 |
|
|
| $ | 9.1 |
|
|
|
|
| 9.0x |
|
|
| $ | 1.04 |
|
|
| $ | 7.3 |
|
|
|
|
| 9.0x |
|
|
| $ | 0.87 |
|
|
| $ | 6.1 |
|
|
|
|
|
| 9.5x |
|
|
| $ | 1.51 |
|
|
| $ | 10.6 |
|
|
|
|
| 9.5x |
|
|
| $ | 1.24 |
|
|
| $ | 8.8 |
|
|
|
|
| 9.5x |
|
|
| $ | 1.07 |
|
|
| $ | 7.5 |
|
|
|
|
|
| 10.0x |
|
|
| $ | 1.73 |
|
|
| $ | 12.2 |
|
|
|
|
| 10.0x |
|
|
| $ | 1.45 |
|
|
| $ | 10.2 |
|
|
|
|
| 10.0x |
|
|
| $ | 1.27 |
|
|
| $ | 8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1 | Number of shares used in calculating price per share and consideration paid to public shareholders includes in-the-money options based on treasury method. |
15
Draft/Confidential
Valuation Implications
|
PRICE PER SHARE MATRIX |
|
EBITDA and EBITDA Multiple Impact on Price per Share |
|
(in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assumed Level of EBITDA | |||||||||||||||
EBITDA | $13.0 | $13.5 | $14.0 | $14.5 | $15.0 | $15.5 | $16.0 | $16.5 | $17.0 | $17.5 | $18.0 | $18.5 | $19.0 | $19.5 | $20.0 | $20.5 |
| ||||||||||||||||
6.0x | NMF | NMF | NMF | NMF | $0.07 | $0.16 | $0.25 | $0.34 | $0.44 | $0.53 | $0.62 | $0.71 | $0.80 | $0.89 | $0.99 | $1.08 |
6.5x | NMF | $0.00 | $0.10 | $0.20 | $0.30 | $0.40 | $0.50 | $0.60 | $0.70 | $0.80 | $0.89 | $0.99 | $1.09 | $1.19 | $1.29 | $1.39 |
7.0x | $0.10 | $0.21 | $0.31 | $0.42 | $0.53 | $0.63 | $0.74 | $0.85 | $0.96 | $1.06 | $1.17 | $1.28 | $1.38 | $1.49 | $1.60 | $1.71 |
7.5x | $0.30 | $0.41 | $0.53 | $0.64 | $0.76 | $0.87 | $0.99 | $1.10 | $1.22 | $1.33 | $1.45 | $1.56 | $1.67 | $1.79 | $1.90 | $2.02 |
8.0x | $0.50 | $0.62 | $0.74 | $0.86 | $0.99 | $1.11 | $1.23 | $1.35 | $1.48 | $1.60 | $1.72 | $1.84 | $1.97 | $2.09 | $2.21 | $2.33 |
8.5x | $0.70 | $0.83 | $0.96 | $1.09 | $1.22 | $1.35 | $1.48 | $1.61 | $1.74 | $1.87 | $2.00 | $2.13 | $2.26 | $2.39 | $2.52 | $2.65 |
9.0x | $0.89 | $1.03 | $1.17 | $1.31 | $1.45 | $1.58 | $1.72 | $1.86 | $2.00 | $2.13 | $2.27 | $2.41 | $2.55 | $2.68 | $2.82 | $2.96 |
9.5x | $1.09 | $1.24 | $1.38 | $1.53 | $1.67 | $1.82 | $1.97 | $2.11 | $2.26 | $2.40 | $2.55 | $2.69 | $2.84 | $2.98 | $3.13 | $3.27 |
10.0x | $1.29 | $1.45 | $1.60 | $1.75 | $1.90 | $2.06 | $2.21 | $2.36 | $2.52 | $2.67 | $2.82 | $2.98 | $3.13 | $3.28 | $3.43 | $3.59 |
16
Draft/Confidential
Valuation Implications
|
PRICE PER SHARE MATRIX (CONTINUED) |
|
2005 Gross Profit Margin and EBITDA Multiple Impact on Price per Share12 |
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(in millions, except per share data) |
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| Gross Profit Margin | ||||||||||||
EBITDA | 36.7% | 36.9% | 37.2% | 37.4% | 37.7% | 37.9% | 38.2% | 38.4% | 38.7% | 38.9% | 39.2% | 39.4% | 39.7% |
| |||||||||||||
6.0x | $0.90 | $1.08 | $1.27 | $1.46 | $1.64 | $1.83 | $2.02 | $2.20 | $2.39 | $2.58 | $2.76 | $2.95 | $3.14 |
6.5x | $1.19 | $1.40 | $1.60 | $1.80 | $2.00 | $2.21 | $2.41 | $2.61 | $2.81 | $3.01 | $3.22 | $3.42 | $3.62 |
7.0x | $1.49 | $1.71 | $1.93 | $2.15 | $2.36 | $2.58 | $2.80 | $3.02 | $3.24 | $3.45 | $3.67 | $3.89 | $4.11 |
7.5x | $1.80 | $2.02 | $2.26 | $2.49 | $2.72 | $2.96 | $3.19 | $3.42 | $3.66 | $3.89 | $4.13 | $4.36 | $4.59 |
8.0x | $2.09 | $2.34 | $2.59 | $2.84 | $3.08 | $3.33 | $3.58 | $3.83 | $4.08 | $4.33 | $4.58 | $4.83 | $5.08 |
8.5x | $2.39 | $2.65 | $2.92 | $3.18 | $3.44 | $3.71 | $3.97 | $4.24 | $4.50 | $4.77 | $5.03 | $5.30 | $5.56 |
9.0x | $2.68 | $2.96 | $3.24 | $3.52 | $3.81 | $4.09 | $4.37 | $4.65 | $4.93 | $5.21 | $5.49 | $5.77 | $6.05 |
9.5x | $2.98 | $3.28 | $3.57 | $3.87 | $4.17 | $4.46 | $4.76 | $5.05 | $5.35 | $5.64 | $5.94 | $6.24 | $6.53 |
10.0x | $3.27 | $3.59 | $3.90 | $4.21 | $4.53 | $4.84 | $5.15 | $5.46 | $5.77 | $6.08 | $6.39 | $6.71 | $7.02 |
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Resulting |
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EBITDA | $19.5 | $20.5 | $21.5 | $22.6 | $23.6 | $24.6 | $25.6 | $26.6 | $27.7 | $28.7 | $29.7 | $30.7 | $31.7 |
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1 | Assumes Membership EBITDA stays at $5.1 million. Adjusted gross profit margin from core business is 36.7%. |
| |
2 | Starting EBITDA in this illustration is $19.5 million, after adjustments of $(0.5) million including public company cost savings of $0.6 million. |
17
Draft/Confidential
Valuation Implications
|
OBSERVEDMULTIPLES |
|
Observed Multiples |
|
EBITDA Multiples |
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1 | Comparable companies include: Charming Shoppes, Blyth and Alloy. |
18
Draft/Confidential
Valuation Implications
|
COMPARABLE PUBLIC COMPANY DEBT-FREE MULTIPLES |
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(figures in millions) |
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| EV / EBITDA |
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| EV (1) |
| FYE |
| LTM |
| NFY |
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| EV (1) |
| FYE |
| LTM |
| NFY |
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Tier 1: Direct Marketers in Apparel and Home Fashion |
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| Coldwater Creek Inc (2) |
| $ | 2,538.8 |
| NMF |
| NMF |
| 19.0x |
| Coldwater Creek Inc (2) |
| $ | 2,538.8 |
| NMF |
| NMF |
| 25.8x |
|
| Charming Shoppes Inc(2)(3) |
| $ | 1,584.4 |
| 6.4x |
| 6.2x |
| 5.8x |
| Charming Shoppes Inc(2)(3) |
| $ | 1,584.4 |
| 10.0x |
| 9.7x |
| 9.0x |
|
| Blyth Inc (4) |
| $ | 1,052.3 |
| 7.1x |
| 7.1x |
| NA |
| Blyth Inc (4) |
| $ | 1,052.3 |
| 9.6x |
| 9.6x |
| 10.0x |
|
| Delias Inc (5) |
| $ | 269.9 |
| NMF |
| NMF |
| NA |
| Delias Inc (5) |
| $ | 269.9 |
| NMF |
| NMF |
| NA |
|
| Alloy Inc (2) |
| $ | 181.4 |
| 10.7x |
| 10.7x |
| 8.9x |
| Alloy Inc (2) |
| $ | 181.4 |
| 15.2x |
| 15.2x |
| 9.3x |
|
| Blair Corp (6) |
| $ | 108.4 |
| 2.8x |
| 3.3x |
| NA |
| Blair Corp (6) |
| $ | 108.4 |
| 3.9x |
| 5.0x |
| NA |
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Tier 2: Direct Marketers in Other Consumer Products |
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| Cabelas Inc (2) |
| $ | 1,470.6 |
| 9.8x |
| 9.4x |
| 8.0x |
| Cabelas Inc (2) |
| $ | 1,470.6 |
| 12.8x |
| 12.4x |
| 11.0x |
|
| Petmed Express Inc (2)(3) |
| $ | 312.1 |
| 16.7x |
| 16.2x |
| 13.2x |
| Petmed Express Inc (2)(3) |
| $ | 312.1 |
| 17.2x |
| 16.7x |
| 13.5x |
|
| Sportsmans Guide Inc (7) |
| $ | 245.9 |
| 12.6x |
| 12.6x |
| 10.9x |
| Sportsmans Guide Inc (7) |
| $ | 245.9 |
| 13.6x |
| 13.6x |
| 14.3x |
|
| Pc Mall Inc (4) |
| $ | 121.0 |
| NMF |
| 12.7x |
| NA |
| Pc Mall Inc (4) |
| $ | 121.0 |
| NMF |
| 22.2x |
| NA |
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| Low |
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| 6.4x |
| 6.2x |
| 5.8x |
| Low |
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| 9.6x |
| 9.6x |
| 9.0x |
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| High |
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| 16.7x |
| 16.2x |
| 19.0x |
| High |
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| 17.2x |
| 22.2x |
| 25.8x |
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| Median |
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| 10.2x |
| 10.7x |
| 9.9x |
| Median |
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| 13.2x |
| 13.6x |
| 11.0x |
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| Mean |
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| 10.5x |
| 10.7x |
| 11.0x |
| Mean |
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| 13.1x |
| 14.2x |
| 13.3x |
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Tier 3: Home Fashion Retailers |
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| Bed Bath & Beyond Inc (2)(4) |
| $ | 9,685.5 |
| 9.8x |
| 9.8x |
| 9.1x |
| Bed Bath & Beyond Inc (2)(4) |
| $ | 9,685.5 |
| 11.0x |
| 11.0x |
| 10.1x |
|
| Williams-Sonoma Inc (4) |
| $ | 4,357.0 |
| 9.0x |
| 9.0x |
| 8.5x |
| Williams-Sonoma Inc (4) |
| $ | 4,357.0 |
| 12.2x |
| 12.2x |
| 11.3x |
|
Footnotes:
|
|
(1) | EV is calculated based on market value of equity as of May 22, 2006, plus net debt. Revolver balance is based on the average balance in the last 4 quarters. |
|
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(2) | IBES consensus projections. |
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(3) | Based on company press release. |
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(4) | IBES consensus projections. No EBITDA projection available. |
|
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(5) | No projections available. Delis is excluded from the multiple range due to the limited trading history. |
|
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(6) | No projections available. Blair is excluded from the multiple range. |
|
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(7) | On May 6, 2006 PPR SA announced acquisition of Sportsman Guide, Inc. at $31.00 a share. As such the EV and multiples shown here are based on May 4, 2006 share price and financials results available as of that date. |
|
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| 19 |
|
|
Draft/Confidential |
|
Valuation Implications
|
RISK RANKINGS |
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Size |
| Size |
| Historical Growth |
| Historical Growth |
| Projected Growth | ||||||||||||||||||
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| |||||||||||||||||||||||
Charming Shoppes Inc |
| $ | 2,887 |
|
| Coldwater Creek Inc |
| $ | 2,539 |
|
| Coldwater Creek Inc |
| 23.3 | % |
| Coldwater Creek Inc |
|
| 33.5 | % |
| Coldwater Creek Inc |
| 26.4 | % |
Cabelas Inc |
| $ | 1,854 |
|
| Charming Shoppes Inc |
| $ | 1,584 |
|
| Sportsmans Guide Inc |
| 21.0 | % |
| Sportsmans Guide Inc |
|
| 22.7 | % |
| Cabelas Inc |
| 12.2 | % |
Blyth Inc |
| $ | 1,573 |
|
| Cabelas Inc |
| $ | 1,471 |
|
| Delias Inc |
| 16.7 | % |
| Delias Inc |
|
| 13.7 | % |
| Charming Shoppes Inc |
| 11.4 | % |
Pc Mall Inc |
| $ | 993 |
|
| Blyth Inc |
| $ | 1,052 |
|
| Cabelas Inc |
| 13.7 | % |
| Charming Shoppes Inc |
|
| 18.0 | % |
| Sportsmans Guide Inc |
| 8.5 | % |
Coldwater Creek Inc |
| $ | 788 |
|
| Delias Inc |
| $ | 270 |
|
| Charming Shoppes Inc |
| 9.8 | % |
| Cabelas Inc |
|
| 15.7 | % |
| Alloy Inc |
| 4.7 | % |
Blair Corp |
| $ | 479 |
|
| Sportsmans Guide Inc |
| $ | 246 |
|
| Pc Mall Inc |
| 7.3 | % |
| Hanover Direct |
|
| 13.0 | % |
| Hanover Direct |
| 4.1 | % |
Hanover Direct |
| $ | 418 |
|
| Alloy Inc |
| $ | 181 |
|
| Hanover Direct |
| 4.9 | % |
| Pc Mall Inc |
|
| 1.9 | % |
| Blyth Inc |
| -1.3 | % |
Sportsmans Guide Inc |
| $ | 285 |
|
| Pc Mall Inc |
| $ | 121 |
|
| Blyth Inc |
| 2.2 | % |
| Blyth Inc |
|
| -0.8 | % |
| Pc Mall Inc |
| -1.8 | % |
Delias Inc |
| $ | 227 |
|
| Blair Corp |
| $ | 108 |
|
| Blair Corp |
| -11.1 | % |
| Blair Corp |
|
| -8.9 | % |
| Delias Inc |
| NA |
|
Alloy Inc |
| $ | 195 |
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| Alloy Inc |
| NA |
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| Alloy Inc |
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| NA |
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| Blair Corp |
| NA |
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Historical Growth |
| Historical Growth |
| Projected Growth |
| Projected Growth |
| Profitability | ||||||||||||||||||
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| |||||||||||||||||||||||
Coldwater Creek Inc |
|
| 65.0 | % |
| Alloy Inc |
|
| 419.6 | % |
| Coldwater Creek Inc |
| 31.4 | % |
| Pc Mall Inc |
|
| 30.0 | % |
| Coldwater Creek Inc |
| 9.4 | % |
Hanover Direct |
|
| 48.3 | % |
| Coldwater Creek Inc |
|
| 50.6 | % |
| Cabelas Inc |
| 21.3 | % |
| Charming Shoppes Inc |
|
| 24.0 | % |
| Blyth Inc |
| 7.0 | % |
Sportsmans Guide Inc |
|
| 33.4 | % |
| Sportsmans Guide Inc |
|
| 36.7 | % |
| Alloy Inc |
| 20.5 | % |
| Sportsmans Guide Inc |
|
| 20.0 | % |
| Cabelas Inc |
| 6.4 | % |
Charming Shoppes Inc |
|
| 25.8 | % |
| Charming Shoppes Inc |
|
| 28.7 | % |
| Sportsmans Guide Inc |
| 15.7 | % |
| Cabelas Inc |
|
| 15.0 | % |
| Sportsmans Guide Inc |
| 6.3 | % |
Cabelas Inc |
|
| 16.1 | % |
| Cabelas Inc |
|
| 17.0 | % |
| Charming Shoppes Inc |
| 9.2 | % |
| Alloy Inc |
|
| NA |
|
| Alloy Inc |
| 6.1 | % |
Blair Corp |
|
| 8.9 | % |
| Hanover Direct |
|
| 14.6 | % |
| Hanover Direct |
| -31.7 | % |
| Blair Corp |
|
| NA |
|
| Charming Shoppes Inc |
| 5.7 | % |
Alloy Inc |
|
| 6.3 | % |
| Blair Corp |
|
| 12.8 | % |
| Delias Inc |
| NA |
|
| Coldwater Creek Inc |
|
| NA |
|
| Blair Corp |
| 4.5 | % |
Blyth Inc |
|
| -17.5 | % |
| Blyth Inc |
|
| -27.3 | % |
| Pc Mall Inc |
| NA |
|
| Delias Inc |
|
| NA |
|
| Hanover Direct |
| 3.3 | % |
Pc Mall Inc |
|
| -34.6 | % |
| Pc Mall Inc |
|
| -64.2 | % |
| Blair Corp |
| NA |
|
| Hanover Direct |
|
| NA |
|
| Delias Inc |
| 0.6 | % |
Delias Inc |
|
| NMF |
|
| Delias Inc |
|
| NMF |
|
| Blyth Inc |
| NA |
|
| Blyth Inc |
|
| NA |
|
| Pc Mall Inc |
| 0.5 | % |
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Profitability |
| Relative Depreciation |
| Internal Investment |
| Liquidity |
| Leverage | ||||||||||||||||||
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| |||||||||||||||||||||||
Coldwater Creek Inc |
|
| 12.9 | % |
| Delias Inc |
|
| 79.9 | % |
| Cabelas Inc |
| 8.3 | % |
| Blyth Inc |
|
| 2.8 |
|
| Coldwater Creek Inc |
| 0.0x |
|
Blyth Inc |
|
| 9.4 | % |
| Pc Mall Inc |
|
| 42.9 | % |
| Coldwater Creek Inc |
| 10.3 | % |
| Blair Corp |
|
| 2.4 |
|
| Sportsmans Guide Inc |
| 0.0x |
|
Charming Shoppes Inc |
|
| 8.9 | % |
| Alloy Inc |
|
| 46.9 | % |
| Delias Inc |
| 5.1 | % |
| Alloy Inc |
|
| 2.0 |
|
| Blair Corp |
| 0.0x |
|
Alloy Inc |
|
| 8.7 | % |
| Charming Shoppes Inc |
|
| 36.2 | % |
| Charming Shoppes Inc |
| 3.8 | % |
| Coldwater Creek Inc |
|
| 2.0 |
|
| Delias Inc |
| 0.7x |
|
Cabelas Inc |
|
| 8.4 | % |
| Blair Corp |
|
| 34.3 | % |
| Blair Corp |
| 1.7 | % |
| Cabelas Inc |
|
| 1.8 |
|
| Charming Shoppes Inc |
| 1.0x |
|
Blair Corp |
|
| 6.9 | % |
| Coldwater Creek Inc |
|
| 27.0 | % |
| Alloy Inc |
| 1.4 | % |
| Charming Shoppes Inc |
|
| 1.8 |
|
| Hanover |
| 1.8x |
|
Sportsmans Guide Inc |
|
| 6.9 | % |
| Blyth Inc |
|
| 25.6 | % |
| Blyth Inc |
| 1.1 | % |
| Hanover Direct |
|
| 1.4 |
|
| Cabelas Inc |
| 2.5x |
|
Hanover Direct |
|
| 3.9 | % |
| Cabelas Inc |
|
| 24.2 | % |
| Hanover Direct |
| 0.4 | % |
| Pc Mall Inc |
|
| 1.3 |
|
| Blyth Inc |
| 2.8x |
|
Delias Inc |
|
| 2.8 | % |
| Hanover Direct |
|
| 16.1 | % |
| Sportsmans Guide Inc |
| 0.3 | % |
| Sportsmans Guide Inc |
|
| 1.2 |
|
| Alloy Inc |
| 4.3x |
|
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| Sportsmans Guide Inc |
|
| 7.5 | % |
| Pc Mall Inc |
| 0.3 | % |
| Delias Inc |
|
| 1.1 |
|
| Pc Mall Inc |
| 4.7x |
|
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|
Hanover 2006 revenue and EBITDA are based on Revised Budget.
|
|
(1) | EV is calcuated based on market value of equity, plus the net debt. Revolver balance is based on the average balance in the last 4 quarters. |
|
|
(2) | Hanover EBITDA has not been adjusted for any public company cost savings. |
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| 20 |
|
|
Draft/Confidential |
|
Valuation Implications
|
COMPARABLE TRANSACTION SUMMARY1 |
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| LTM Enterprise Value Multiples |
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Announced |
| Effective |
| Target |
| Target Industry |
| Acquiror |
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| EV |
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| Revenue |
| EBITDA |
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| EBIT |
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| EBITDA |
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| 1 Day |
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5/5/2006 |
| Pending |
| Sportsmans Guide Inc. |
| Catalog Retail |
| PPR SA |
| $ | 265.0 |
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| 0.93 x |
| 13.6 x |
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| 14.7 x |
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| 6.9 | % |
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| 2.0 | % |
| 2.2 | % |
| 15.1 | % |
2/5/2006 |
| 5/3/2006 |
| J Jill Group Inc. |
| Catalog Retail |
| Talbots |
| $ | 500.8 |
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| 1.11 x |
| 19.7 x |
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| 191.4 x |
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| 5.6 | % |
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| 24.6 | % |
| 23.8 | % |
| 24.9 | % |
12/4/2005 |
| 2/9/2006 |
| Provide Commerce |
| Internet Retail |
| Liberty Media Corp |
| $ | 450.5 |
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| 2.45 x |
| 26.4 x |
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| 32.0 x |
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| 9.6 | % |
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| 16.6 | % |
| 16.5 | % |
| 45.1 | % |
12/1/2005 |
| 12/1/2005 |
| SkyMall Inc. |
| Catalog Retail |
| Spire Capital Partners Consortium |
| $ | 52.0 |
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| 0.73 x |
| NA |
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| NA |
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| 100.0 | % |
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| NA |
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| NA |
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| NA |
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5/19/2005 |
| 6/2/2005 |
| Crosstown Traders |
| Internet Retail |
| Charming Shoppes Inc. |
| $ | 258.7 |
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| 0.56 x |
| 8.6 x | (2) |
| NA |
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| NA |
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| NA |
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| NA |
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| NA |
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4/15/2005 |
| 10/4/2005 |
| Brookstone Inc. |
| Specialty Stores |
| OSIM/Temasek/Childs |
| $ | 419.3 |
| (3) |
| 0.84 x |
| 8.3 x |
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| 11.3 x |
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| 9.4 | % |
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| 31.4 | % |
| 24.8 | % |
| 40.7 | % |
3/1/2005 |
| 4/1/2005 |
| Cornerstone Brands, Inc. |
| Catalog Retail |
| IAC/InterActive Corp. |
| $ | 715.0 |
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| 1.00 x |
| 10.8 x |
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| 12.1 x |
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| 9.2 | % |
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| NA |
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| NA |
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| NA |
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6/29/2004 |
| 6/29/2004 |
| Golf Warehouse, The |
| Internet Retail |
| Sportmans Guide Inc. |
| $ | 30.0 |
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| 0.66 x |
| NA |
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| NA |
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| NA |
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| NA |
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| NA |
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| NA |
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7/31/2003 |
| 9/3/2003 |
| dELiA*s |
| Catalog Retail |
| Alloy Inc. |
| $ | 51.7 |
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| 0.37 x |
| NMF |
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| NMF |
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| NMF |
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| NA |
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| NA |
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| NA |
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4/16/2003 |
| 7/2/2003 |
| Lillian Vernon Corp. |
| Catalog Retail |
| Ripplewood Holdings LLC |
| $ | 40.1 |
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| 0.17 x |
| NMF |
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| NMF |
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| NMF |
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| 72.6 | % |
| 74.7 | % |
| 71.0 | % |
3/10/2003 |
| 4/2/2003 |
| Miles Kimball Company |
| Catalog Retail |
| Blyth, Inc. |
| $ | 65.0 |
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| 0.54 x |
| NA |
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| NA |
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| NA |
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| NA |
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| NA |
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| NA |
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5/13/2002 |
| 6/17/2002 |
| Land’s End |
| Catalog Retail |
| Sears Roebuck & Co. |
| $ | 1,793.7 |
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| 1.12 x |
| 11.5 x |
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| 14.0 x |
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| 8.9 | % |
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| 21.5 | % |
| 23.2 | % |
| 27.9 | % |
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Low |
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| $ | 30.0 |
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| 0.17 x |
| 8.3 x |
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| 11.3 x |
| # |
| 5.6 | % |
| # |
| 2.0 | % |
| 2.2 | % |
| 15.1 | % |
High |
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| $ | 1,793.7 |
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| 2.45 x |
| 26.4 x |
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| 191.4 x |
| # |
| 100.0 | % |
| # |
| 72.6 | % |
| 74.7 | % |
| 71.0 | % |
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Median |
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| $ | 261.9 |
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| 0.79 x |
| 12.5 x |
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| 14.3 x |
| # |
| 9.2 | % |
| # |
| 23.1 | % |
| 23.5 | % |
| 34.3 | % |
Mean |
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| $ | 386.8 |
|
|
| 0.87 x |
| 15.0 x |
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| 45.9 x |
| # |
| 21.4 | % |
| # |
| 28.1 | % |
| 27.5 | % |
| 37.4 | % |
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• | The above transactions generally reflect acquisition of companies with better margins and more scale than Hanover. Therefore, comparability may not be appropriate. |
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1 | Transactions with announcement dates between 2002 – 2006 for which purchase price multiples were available were considered. Sources included Securities Data Company, Mergerstat, and public filings. |
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2 | Forward EBITDA multiple was estimated to be in the range of 6-7 times based on press releases. |
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3 | The EV is based on the initial offer price of $20.50 per share. The offer price was revised to $20.00 per share on July 15, 2005. LTM June 2005 EBITDA was estimated to be of $41.8 million (Source: Capital IQ). The EBITDA multiple would have been 9.4x. |
21
Draft/Confidential
Valuation Implications
|
ACQUISITIONPREMIUMANALYSIS |
|
Acquisition Premium Analysis1 |
Premium
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1 | Based on 13e3 transactions filings with SEC for the period of 2004 – 2006, and 2002 – 2006 comparable M&A transactions. |
22
Draft/Confidential