According to St. John’s new 10-K, five lawsuits seeking class-action status in challenging the buyout proposal have been filed in Superior Court of California in Orange County in the last two months. The suits charge Gray and other management and some of the firm’s directors with “breach of fiduciary duty” arising from the proposed buyout transaction, the 10-K said.
As reported, the Grays and Vestar Capital Partners are offering $28 a share, or $490 million, to purchase the outstanding shares of St. John that the Grays don’t already own. This extension is the fourth time the expiration date has been pushed back since the proposal was made Dec. 8, but the narrow extension surprised many on Wall Street.
A company spokesman said St. John sought the short extension because it is close to making an announcement, though he could not comment further. Some analysts thought St. John might be close to announcing that the buyout has been accepted by an independent committee of the firm’s board, but others believe St. John will increase its offer to appease shareholders.
Several analysts and shareholders were unhappy with the offer’s price and expressed that during a conference call in December, when the firm discussed its fourth-quarter earnings.
In a late December report, analyst Jennifer Black Groves, Black & Co., said the “fair value” for St. John’s shares is “in excess of $35” and the stock could be worth $45 to $50 in 12 months.
“Even after reporting a disappointing year, the company still commands the highest gross margins in the industry,” Groves wrote. “We are disappointed by the existing offer that management has proposed. We believe St. John has temporarily stumbled and that it remains the tremendous growth story we always thought it was.”
On the day the proposal was announced — after the market closed — St. John stock closed at 21 15/16. In the previous 52 weeks, the stock had traded as low as 13 and as high as 48 5/16. On Monday, the shares closed at 26 9/16, up 1/16.
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One of the lawsuits filed by shareholder Kenneth O. Hill, represented by San Diego attorney William Lerach, charges the Grays timed the announcement to “place an artificial lid or cap on the market price for St. John Knits’ stock to enable them to acquire the stock at the lowest possible price.” It also alleges that a shareholder rights plan adopted by the firm in November “was designed to deter any outside third party from purchasing St. John Knits at a fair-market price.”
St. John in its 10-K said the plaintiffs in the suit wanted to prevent the buyout, or if it goes through, cancel it. A St. John spokesman said the firm believed the lawsuits had no merit and intended to “oppose them vigorously” in court.
In the year ended Nov. 1, St. John’s earnings tumbled 35 percent to $7.1 million, or 42 cents a share, from $11 million, or 64 cents, a year ago. Sales jumped 16.5 percent to $282 million.
After years of stellar earnings, the firm missed Wall Street estimates in the last three quarters of its most recent year and has struggled with production inefficiencies.