SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
ASHWORTH, INC.
(Name of Subject Company)
ASHWORTH, INC.
(Name of Person Filing Statement)
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(Title of Class of Securities)
04516H101
(CUSIP Number of Class of Securities)
Halina Balys
Vice President, Corporate Secretary and Compliance Officer
2765 Loker Avenue West
Carlsbad, California 92010
(760) 438-6610
(Name, address and telephone number of person authorized to receive notices
and communications on behalf of the person filing statement)
Copies to:
Gibson, Dunn & Crutcher LLP
3161 Michelson Drive, Suite 1200
Irvine, California 92612
(949) 451-3800
Attention: Mark W. Shurtleff, Esq.
|
|
|
o
Check the box if the filing relates solely to preliminary communications made before the
commencement of a tender offer.
|
TABLE OF CONTENTS
This Amendment No. 1 amends and supplements the Solicitation/Recommendation Statement on
Schedule 14D-9 initially filed by Ashworth, Inc., a Delaware corporation (the “Company”), with the
Securities and Exchange Commission (the “SEC”) on October 20, 2008. The Schedule 14D-9 relates to
the tender offer commenced by PHX Acquisition Corp., a Delaware corporation (the “Purchaser”) and
wholly owned subsidiary of Taylor Made Golf Company, a Delaware corporation (“Parent”), to purchase
all of the outstanding shares of common stock of the Company at a price of $1.90 per share, net to
the holder in cash (subject to adjustment and applicable withholding tax, without interest, on the
terms and subject to the conditions set forth in the Purchaser’s offer to purchase dated October
20, 2008 and the related letter of transmittal), all as described in a Tender Offer Statement on
Schedule TO filed by the Purchaser with the SEC on October 20, 2008, as may be amended or
supplemented from time to time. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Schedule 14D-9.
Item 4. The Solicitation or Recommendation.
The second paragraph under the heading “Background of the Offer” is amended and restated as
follows:
The Company initially began exploring strategic alternatives toward the end of calendar year
2005. On November 28, 2005, after interviewing a number of
potential investment bankers, the Company engaged Houlihan Lokey
Howard & Zukin (“HLHZ”) to assist. HLHZ was selected
(i) because of its focus on companies comparable in size to the
Company and (ii) because, in addition to its national and
international presence, HLHZ maintained a significant presence in
Southern California. On
February 22, 2006, HLHZ began reaching out to potential partners. As of May 2006, HLHZ had
contacted 72 potential buyers (consisting of 42 strategic and 30 financial potential buyers). Of
these, 45 initially declined, and 27 executed a confidentiality agreement and received the
information memorandum. Of these, 23 declined after reviewing the information memorandum, and three
submitted an initial bid. The Company received no final bids. In connection with HLHZ’s engagement,
the Company paid to HLHZ a retainer of $130,000 and reimbursed HLHZ for $104,000 in expenses. The
engagement with HLHZ was terminated on May 16, 2007. Since that time, the Company’s results of
operations and financial position have substantially and continually deteriorated.
The fifth paragraph under the heading “Background of the Offer” is amended and restated as follows:
On May 5, 2008, the Company engaged Kurt Salmon Associates Capital Advisors, Inc. (“KSA”) as
the Company’s financial advisor as to strategic alternatives for its Gekko Brands, LLC (“Gekko”)
subsidiary. KSA was recommended to the Board by Mr. Meyer and Mr. Koeneke (both of whom have
extensive investment banking experience) based on (i) KSA’s expertise in the consumer and retail
sector, including apparel (and licensed apparel in particular), (ii) KSA’s involvement in the
successful sale of Cutter & Buck, an industry peer, (iii) KSA’s promise of direct, senior-level
attention and effort that would likely not be available from larger investment banks or other
qualified advisors and (iv) KSA’s track record of successfully closing acquisitions. In connection
with such engagement, KSA established a virtual data room containing data with respect to Gekko.
The seventh paragraph under the heading “Background of the Offer” is amended and restated as
follows:
On May 29, 2008, the Board discussed certain strategic issues and alternatives. The Board
approved amending the KSA engagement to include a potential sale of the entire Company. However,
KSA was not authorized to contact any third party about a potential sale of the Company absent
further approval of the Board, in an attempt to (i) prevent rumors from spreading throughout the
market when no decision had been reached about selling the Company as a whole, (ii) avoid
disruption to the Company’s business and (iii) ensure that
contacts with potentially interested
parties would be meaningful. On June 4, 2008, the Company and KSA revised their engagement letter
to include a strategic review of the whole Company, in addition to Gekko.
The 16th paragraph under the heading “Background of the Offer” is amended and restated as follows:
Mr. Meyer noted that Parent appeared prepared to move forward with a potential transaction
with an expeditious closing and had engaged a financial advisor, while Party A and Party B would
require substantial additional due diligence, were not well-placed to absorb the losses and other
challenges facing the Company, and would likely place conditions on its offer that could be
difficult or impossible to satisfy. At the meeting, the Company’s legal counsel, Gibson, Dunn &
Crutcher LLP (“Gibson Dunn”), advised the Board on its fiduciary duties in connection with a
potential sale of the Company. Thereafter, the Board adopted a resolution authorizing KSA to
contact parties — in addition to Parent, Party A and Party B — that may be interested in acquiring
the
1
Company or any of its assets in consultation with Mr. Meyer, so that Mr. Meyer could, based on
his knowledge of the Company’s business and the industry, help to determine whether potential
buyers would be qualified in order to keep the sale process focused, confidential and minimally
disruptive. The Board had not previously authorized such further
contacts in an attempt to avoid disruption to the Company’s business
and ensure that contacts with potentially interested parties would be
meaningful. Mr. Meyer was also authorized to continue discussions with potential purchasers and to
enter into an exclusivity agreement with Parent if he deemed advisable. Finally, the Board
discussed alternatives if KSA and Mr. Meyer were unable to locate a suitable acquiror of the
Company, including the potential restructuring of the Company and the need for a restructuring
officer in connection therewith. KSA also provided an update on the potential sale of Gekko,
highlighting the continued challenges of promptly advancing the interest of parties in the process,
and that based on feedback from interested parties following their further diligence, the expected
sale price would likely be lower than the price paid by Ashworth for Gekko in its 2004 acquisition.
KSA also reported that two additional parties had been invited to attend a presentation by Gekko
management.
The 34th paragraph under the heading “Background of the Offer” is amended and restated as follows:
During the morning of October 10, 2008, the Board held a special meeting to discuss
developments in the sale process. Gibson Dunn provided a summary of the status of negotiations with
Parent. The Board observed that its liquidity challenges were worsening and that general market
conditions were rapidly deteriorating. The Board also reviewed the status of negotiations with
Party A. Mr. Meyer indicated that Party A was straightforward about the difficulty it faced moving
forward with a transaction as proposed, including with respect to a large prospective earnings
dilution and the inability to reduce substantial costs in the near term, and even suggested
possibly acquiring the Company out of bankruptcy in a pre-packaged deal. The Board also considered
management’s communication that vendors were expressing increasing nervousness about the financial
position of the Company. Gibson Dunn advised the Board with respect to its fiduciary duties,
including those arising when an entity enters the zone or vicinity of insolvency. Mr. Meyer
indicated to the Board that he would contact Parent with a counter-offer of $3 per share or higher
to assess whether Parent would be receptive to a higher price.
The first paragraph under the heading “Reasons for the Offer and the Merger” is amended and
restated as follows:
In evaluating the Offer, the Merger and the Merger Agreement, the Board consulted with the
Company’s management, legal counsel and financial advisors. In reaching its decision that the Offer
and the Merger are advisable and fair to, and in the best interest of, the Company’s stockholders,
and in reaching its recommendation that stockholders tender their Shares in the Offer, and, if
applicable, vote in favor of the Merger, the Board considered a number of reasons, including the
following material reasons, that the Board viewed as supporting its recommendation.
The second full (
i.e.
, non-bulleted) paragraph under the heading “Reasons for the Offer and the
Merger” is amended and restated as follows:
In addition to the reasons set forth above, the Board considered the following potentially
negative reasons not to consummate the Offer and the Merger:
The third through fifth full (
i.e.
, non-bulleted) paragraphs under the heading “Reasons for the
Offer and the Merger” are amended and restated as follows:
The Board concluded, however, that many of these risks could be managed or mitigated by the
Company or were unlikely to have a material effect on the Offer, the Merger or the combined
company, and that, overall, the risks, uncertainties, restrictions and potentially negative reasons
not to consummate the Offer and the Merger were outweighed by the potential benefits of the Offer
and the Merger.
The Board did not assign relative weights to the foregoing reasons or determine that any
reason was of particular importance. Rather, the members of the Board viewed their position and
recommendation as being based on the totality of the information presented to and considered by
them. Individual members of the Board may have given different weight to different reasons.
2
The foregoing discussion of reasons considered by the Board is not meant to be exhaustive but
includes the material reasons considered by the Board in approving the Merger Agreement and the
transactions contemplated by the Merger Agreement and in recommending that stockholders accept the
Offer, tender their Shares and approve the Merger Agreement and the Merger. Moreover, the foregoing
is not meant to imply that the Merger Agreement and the transactions contemplated thereby were
approved unanimously, as James B. Hayes opposed the transaction and Stephen G. Carpenter, who was
not present at the meeting when the Merger Agreement was approved, subsequently indicated that he
was opposed to the transaction.
The information under the heading “Opinion of Kurt Salmon Associates Capital Advisors, Inc.” is
amended and restated as follows:
Opinion of Kurt Salmon Associates Capital Advisors, Inc.
Overview.
Pursuant to an engagement letter, dated as of May 5, 2008, as amended on June 4,
2008 (the “Engagement Letter”), the Company retained KSA as its exclusive financial advisor in
connection with the Offer and the Merger (collectively, the “Transaction”).
Opinion.
At the meeting of the Board on October 12, 2008, KSA rendered its oral opinion to
the Board that, based upon and subject to the factors and assumptions set forth in its opinion, the
Offer Price (
i.e.
, the right, in the case of the Offer, to receive for each share of Company common
stock $1.90 in cash, and, in the case of the Merger, to convert each share of Company common stock
into the right to receive $1.90 in cash, all as described in the Merger Agreement and summarized in
KSA’s written opinion) to be received by such holders, other than Dissenting Shares (as defined in
the Merger Agreement) or any shares of Company common stock held in the treasury of the Company or
owned by the Company or its affiliates, is fair, from a financial point of view, to the Company’s
common stockholders as of the date the Offer Price is to be received by such stockholders. KSA
confirmed its oral opinion by delivering its written opinion, dated as of October 12, 2008, to the
Board.
The full text of the written opinion of KSA, dated as of October 12, 2008, which sets forth
the assumptions made, procedures followed, matters considered, and qualifications and limitations
on the review undertaken by KSA in rendering its opinion, is attached as Annex A to this Statement
and is incorporated herein by reference. The summary of KSA’s opinion below is qualified in its
entirety by reference to the full text of the opinion, and the Company’s stockholders are urged to
read the opinion carefully and in its entirety. KSA provided its opinion to the Board in connection
with, and for the purpose of, the Company’s evaluation of the Transaction. KSA’s opinion does not
constitute a recommendation to any stockholder of the Company as to whether such stockholder should
tender Shares in the Offer or how such stockholder should vote with respect to any matter.
In arriving at its opinion, KSA reviewed and analyzed such materials and considered such
financial and other factors that it deemed relevant under the circumstances. In addition, KSA has:
|
|
•
|
|
reviewed the financial terms and conditions of the draft Merger Agreement provided
to KSA and the Board by the Company’s legal counsel on October 11, 2008;
|
|
|
|
|
•
|
|
reviewed and analyzed certain financial and other data with respect to the Company,
which was publicly available or made available to KSA from internal records of the
Company;
|
|
|
|
|
•
|
|
reviewed and analyzed certain internal financial projections for the quarter ending
October 31, 2008 and fiscal year ending October 31, 2009, on a stand-alone basis
provided to KSA by the management of the Company;
|
|
|
|
|
•
|
|
reviewed and analyzed management’s line of credit availability projection;
|
|
|
|
|
•
|
|
compared the financial performance of the Company with that of certain other
publicly traded companies deemed by KSA to be relatively and reasonably comparable to
the Company or otherwise relevant to KSA’s inquiry;
|
3
|
|
•
|
|
reviewed the financial terms, to the extent publicly available, of certain
transactions deemed by KSA to be relatively and reasonably comparable or otherwise
relevant to KSA’s inquiry;
|
|
|
|
|
•
|
|
reviewed and analyzed the reported prices and trading history of the Shares from
October 10, 2003 to October 10, 2008;
|
|
|
|
|
•
|
|
performed a discounted cash flows analysis for the Company on a stand-alone basis
utilizing management’s financial projection for the fiscal year ending October 31, 2009
and applying certain sensitivity analysis for the fiscal years ending October 31, 2010
and beyond; and
|
|
|
|
|
•
|
|
reviewed other financial studies, analyses and investigations KSA deemed
appropriate, including KSA’s assessment of general economic, market and monetary
conditions.
|
KSA also held discussions with the management of the Company and the Board concerning the
Company’s business and operations, assets, present condition and future prospects, participated in
discussions and negotiations among representatives of the Company and Parent, and undertook such
other studies, analyses and investigations as KSA deemed relevant and appropriate.
KSA relied upon and assumed the accuracy and completeness of all information supplied or
otherwise made available to KSA, discussed with or reviewed by or for KSA, or publicly available,
and KSA did not assume any responsibility for independently verifying such information and did not
undertake an independent evaluation or appraisal of any of the assets or liabilities of the Company
and was not furnished with any such evaluation or appraisal. KSA expressed no opinion regarding the
liquidation value of the Company. In addition, KSA did not assume any obligation to conduct any
physical inspection of the properties or facilities of the Company. With respect to the projections
furnished to or discussed with KSA by the Company, KSA assumed that they had been reasonably
prepared and reflect the best currently available estimates and judgment of the Company’s
management as to the expected future financial performance of the Company, and KSA expressed no
opinion with respect to such forecasts or the assumptions upon which they were based. KSA further
relied upon the assurances of senior management of the Company that they were not aware of any
facts that would make such financial or other information relating to the Company inaccurate or
misleading. KSA further assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the Transaction will be obtained without any adverse
effect on the Company or Parent and without reducing the contemplated benefits of the Transaction
to the Company or the holders of Company common stock.
KSA’s opinion is necessarily based upon market, economic and other conditions as they exist
and can be evaluated only as of the date of the opinion. It should be understood that subsequent
developments may affect the opinion and that KSA assumed no responsibility to update, revise or
reaffirm the opinion based upon events or circumstances occurring after the date hereof. Further,
KSA expressed no opinions on matters of legal, regulatory, tax or accounting nature relating to or
arising out of the proposed Transaction and relied, with the Company’s consent, on the advice of
the outside counsel and the independent accountants to the Company, and on the assumptions of the
management of the Company, as to all accounting, legal, tax and financial reporting matters with
respect to the Company and the Merger Agreement. Without limiting the generality of the foregoing,
KSA did not undertake any independent analysis of any current, pending or threatened litigation,
regulatory action, possible unasserted claims or other contingent liabilities to which the Company
or any of its affiliates is a party or may be subject, and, at the direction of the Company and
with its consent, KSA’s opinion makes no assumption concerning, and therefore does not consider,
the possible assertion of claims, outcomes or damages arising out of any such matters.
In accordance with customary investment banking practice, KSA employed generally accepted
valuation methods in reaching its opinion. The following is a summary of the material financial
analyses utilized by KSA in connection with providing its opinion.
Projections.
The projections furnished to KSA for the Company were prepared by the management
of the Company. The Company does not publicly disclose internal management projections of the type
provided to KSA in connection with KSA’s analysis of the Transaction, and such projections were not
prepared with a view toward
public disclosure, for the following reasons. The Company believes
that it is not customary to disclose projections in a recommendation
statement relating to a tender offer. Moreover, given changes in the
apparel industry since the projections were prepared, the Company
believes that the projections may not reflect current economic
conditions, which are much less favorable, and therefore would not be
helpful. The projections were based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of management, including, without limitation,
factors related to general economic and competitive conditions and prevailing interest rates.
Accordingly, actual results could vary significantly from those set
forth in the projections.
4
Comparable Public Companies Analysis.
KSA reviewed selected financial data and valuation
multiples for the Company and compared this to corresponding data and multiples for 18 publicly
traded companies deemed by KSA to be generally comparable to the Company. KSA noted that none of
the selected companies is either identical or directly comparable to the Company and that any
analysis of the selected companies necessarily involves complex considerations and judgments
concerning financial and operating characteristics and other factors that could affect the public
trading of the selected companies. KSA utilized the earnings forecasts for these companies from
publicly available data and Capital IQ.
In reviewing comparable public companies, KSA considered the following factors to be
applicable in identifying those public companies for analysis: size of the company with respect to
sales and market capitalization of the equity, similarities in product offerings and distribution,
and financial performance with respect to revenue and earnings trends. Application of these
criteria yielded the following companies which KSA deemed to be most comparable: (i) Delta
Apparel, Inc., (ii) Hartmarx Corporation, (iii) Bernard Chaus, Inc., (iv) Sport Haley, Inc., (v)
Callaway Golf Company, (vi) Aldila, Inc. and (vii) Adams Golf, Inc.
KSA also considered a broader list of apparel companies with market capitalizations under $1.5
billion. This list included (i) Columbia Sportswear Company, (ii) Jones Apparel Group, Inc., (iii)
Kenneth Cole Productions, Inc., (iv) Liz Claiborne, Inc., (v) Oxford Industries, Inc., (vi) Perry
Ellis International, Inc., (vii) Phillips-Van Heusen Corporation, (viii) Quiksilver, Inc., (ix) The
Timberland Company, (x) Under Armour, Inc. and (xi) The Warnaco Group, Inc.
Other larger apparel companies were considered but were not deemed to be the most comparable
to the Company based on their larger and more diverse revenue base, stronger financial performance,
stronger capitalization, and greater access to financing. This list
included (i) adidas AG, (ii)
Gildan Activewear, Inc., (iii) Guess, Inc., (iv) Nike, Inc., (v) Polo Ralph Lauren and (vi) VF
Corporation.
Given the Company’s absence of positive LTM, FY 2008E and FY 2009P (in each case as defined
below) earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation and
amortization (EBITDA) and net income, KSA was unable to derive and apply traditional multiples to
earnings. As a result, KSA used less customary metrics to derive multiples for the comparable
public companies. KSA calculated enterprise value to sales (including LTM, FY 2008E and FY2009P)
ratios, equity price to book value ratios and equity price to tangible book value ratios. LTM
refers to the latest twelve months, FY 2008E refers to the 2008 fiscal year estimate, and FY 2009P
refers to the 2009 fiscal year projection. Estimates and projections for comparable companies were
based on Reuters Consensus Estimates via Capital IQ.
Based on various judgments concerning relative comparability of each of the selected companies
to the Company, KSA did not solely rely on the quantitative results of the analysis in developing
reference ranges or otherwise applying its analysis. KSA selected a range of multiples, with more
weight given to the companies with similar size, financial performance and capitalization to the
Company. KSA’s analysis resulted in a range of enterprise value to LTM sales ratios of 0.31x -
0.41x, enterprise value to FY 2008E sales ratios of 0.43x — 0.53x, enterprise value to FY 2009P
sales ratios of 0.41x — 0.51x, equity price to book value ratios of 0.22x — 0.72x and equity price
to tangible book value ratios of 0.39x — 0.89x for the comparable public companies.
KSA applied the trading multiples range of comparable companies to the Company’s corresponding
metrics to establish a range of implied value per share. KSA gave particular weight to the
enterprise value to LTM sales ratio, which implied a range of $0.59 to $1.90 per share. The overall
comparable public company analysis implied a value range of $1.25 to $2.92 per share. KSA compared
the implied value per share range with the offer price of $1.90. This analysis showed that, based
on the estimates and assumptions used in the analysis, the valuation multiples for the Company
implied by the Offer Price were within the range of valuation multiples calculated for the
comparable public companies.
5
Comparable Precedent Transactions Analysis.
KSA analyzed publicly available information
regarding numerous apparel industry transactions. In determining the transactions that KSA
considered to be comparable to the Offer and the Merger, KSA considered the following factors:
similar product offerings and distribution, similar revenue size and financial performance, and
public availability of adequate financial disclosure with respect to the transactions. KSA also
considered the all-cash form of the transaction consideration. KSA’s review of comparable
transactions extended back for a period of five years.
KSA, based on its experience with mergers and acquisitions and the apparel industry, selected
transactions deemed to be most comparable, which included (i) Radius Partners LLC and Windsong
Brands’ acquisition of Ellen Tracy, (ii) Sun Capital’s acquisition of Kellwood Company, (iii) Perry
Ellis International, Inc.’s acquisition of Laundry By Design and C&C California, (iv) Great Circle
Ventures’ acquisition of Tail, Inc. and (v) Infinity Associates LLC, Perseus LLC and Symphony
Holdings Ltd.’s acquisition of Haggar Corp.
Other transactions that were considered in KSA’s analysis included (i) G-III Apparel Group,
Ltd’s acquisition of Andrew Marc, (ii) Prana Living LLC and Steelpoint Capital Partners’
acquisition of prAna, (iii) VF Corporation’s acquisition of Mo Industries Holdings, Inc., (iv) SRI
Sports Ltd.’s acquisition of Cleveland Golf Company, Inc.,
(v) The Millwork Trading Company’s acquisition of Emma James, Institutions, JH Collectables
and Tapemeasure, (vi) Kenneth Cole Productions’ acquisition of Le Tigre, (vii) Hartmarx
Corporation’s acquisition of Monarchy LLC, (viii) Kellwood Company’s acquisition of Royal Robbins,
(ix) Kellwood Company’s acquisition of Hanna Andersson Corp., (x) New Wave Group AB’s acquisition
of Cutter & Buck, Inc., (xi) Dick’s Sporting Goods, Inc.’s acquisition of Golf Galaxy, Inc., (xii)
Philips-Van Heusen Corp.’s acquisition of Superba, Inc., (xiii) Redcats USA’s acquisition of The
Sportsman’s Guide, Inc., (xiv) Berkshire Hathaway, Inc.’s acquisition of Russell Corp,
(xv) Iconix Brand Group, Inc.’s acquisition of Mossimo, Inc., (xvi) Apax Partners’ acquisition
of Tommy Hilfiger Corp., (xvii) Carter’s Inc.’s acquisition of OshKosh B’Gosh, Inc., (xviii) Oxford
Industries, Inc.’s acquisition of Ben Sherman Limited, (xix) VF Corporation’s acquisition of Vans,
Inc., (xx) J.W. Childs Associates, L.P.’s acquisition of Joseph Abboud Apparel Corp., (xxi) Jones
Apparel Group, Inc.’s acquisition of Kasper A.S.L. Ltd., (xxii) VF Corporation’s acquisition of
Nautica Enterprises, (xxiii) Oxford Industries, Inc.’s acquisition of Viewpoint International, Inc.
(Tommy Bahama), (xix) Leonard Green & Partners, L.P.’s acquisition of Varsity Brands, Inc. and
(xxv) Perry Ellis International, Inc.’s acquisition of Salant, Inc.
KSA also considered over 100 additional transactions involving soft goods, related
accessories, and retail companies over the preceding five-year period that were deemed to be less
comparable in nature.
Given the Company’s absence of positive earnings before interest and taxes (EBIT), earnings
before interest, taxes, depreciation and amortization (EBITDA) and net income, KSA was unable to
derive and apply traditional multiples to earnings. KSA was able to derive and apply enterprise
value to LTM sales ratios for the comparable transactions. The application of the transaction
multiples yielded a range of value from $1.76 to $3.07 per share. This analysis showed that, based
on the estimates and assumptions used in the analysis, the Offer Price of $1.90 was within the
range of valuation calculated for the comparable precedent transactions.
Historic Stock Price Analysis.
KSA reviewed selected market information concerning the
Company’s common stock, including stock price and trading volume over selected periods. KSA
compared the consideration to be received by the shareholders of the Company of $1.90 per share to
the Company’s stock price on October 10, 2008, the 52-week low (reached on October 8, 2008), the
one-month close, four-week average, three-months close, six-months close and one-year close
preceding October 10, 2008, and the 52-week high (reached on October 12, 2007).
KSA observed that as of October 10, 2008, the one-month trading range for the Company common
stock was $1.42 to $3.95 per share. The Company’s stock price had declined 56.6% since the release
of the latest quarterly earnings on September 9, 2008. The $1.90 per share consideration
represented a 9.8% premium to the October 10, 2008 closing price of $1.73 and 33.8% premium to the
52-week low of $1.42 reached on October 8, 2008. While the trading history of the Company common
stock over a 52-week period was reviewed, KSA observed that the one-month trading range for the
Company common stock was most relevant given the present commercial environment for apparel and
retail companies, severe liquidity pressures and the recently announced operating losses.
6
KSA did not express any opinion as to the actual value of the Company’s common stock on
October 10, 2008, or the prices at which the Company’s stock may trade following the announcement
of the Merger or at any time in the future.
Discounted Cash Flow Analysis.
KSA performed a discounted cash flow analysis, calculating a
range of theoretical equity values for the Company based on the net present value of the projected
free cash flow (defined as EBIT less taxes on EBIT, plus depreciation and amortization, plus
deferred taxes, less capital expenditures, adjusted for any changes in projected working capital)
for fiscal years ending October 31, 2009 through 2013, plus the net present value of a terminal
value. The terminal value is an estimate of the future value of the Company at the end of fiscal
year 2013 based on a terminal multiple of 2013 projected EBITDA. KSA utilized forecasted financial
results provided by the Company management for the fiscal years ending October 31, 2008 and 2009,
and KSA estimates for the fiscal years ending October 31, 2010 through 2013, based on the
assumptions used and provided by the Company’s management for the prior projected periods and
applying a range of sensitivity.
KSA calculated a range of net present values based on an assumed tax rate of 0.0% (given the
Company’s significant net operating losses, the Company is not projected to pay taxes for fiscal
years 2009 — 2013), discount rates ranging between 12.0% and 14.0% (based upon an analysis of the
weighted average cost of capital of the Company), and a range of EBITDA terminal multiples of 6.5x
to 7.5x applied to the projected fiscal year ending October 31, 2013 EBITDA. KSA added the
Company’s net debt as of July 31, 2008 resulting in an implied equity value for the Company, which,
divided by the fully diluted shares outstanding as of October 10, 2008, implied per share values of
the Company’s equity ranging from a low of $0.38 to a high of $1.10. This analysis showed that,
based on the estimates and assumptions used in the analysis, the Offer Price of $1.90 was above the
range of valuation calculated in the discounted cash flow analysis.
The foregoing summary of certain material financial analyses does not purport to be a complete
description of the analyses or data presented by KSA. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or summary description. KSA
believes that the foregoing summaries and their respective analyses must be considered as a whole
and that selecting portions of the foregoing summaries and their respective analyses, without
considering all of the analyses as a whole, could create an incomplete view of the processes
underlying the analyses and its opinion. In arriving at its opinion, KSA did not attribute any
particular weight to any analysis or factor (positive or negative), considered in isolation, that
supported or failed to support its opinion. Rather, KSA considered the totality of the factors and
analyses performed in determining its opinion. Analyses based upon forecasts of future results are
inherently uncertain, as they are subject to numerous factors or events beyond the control of the
parties and their advisors. Accordingly, forecasts and analyses used or made by KSA are not
necessarily indicative of actual future results, which may be significantly more or less favorable
than suggested by those analyses. Moreover, KSA’s analyses are not and do not purport to be
appraisals or otherwise reflective of the prices at which businesses actually could be bought or
sold. None of the selected companies reviewed as described in the above summary is identical to the
Company, and none of the selected transactions reviewed was identical to the Transaction. However,
the companies selected were chosen because they are publicly traded companies with operations and
businesses that, for purposes of KSA’s analysis, may be considered similar to those of the Company.
The transactions selected were similarly chosen because their participants, size and other factors,
for purpose of KSA’s analysis, may be considered similar to the Transaction. The analyses
necessarily involve complex considerations and judgments concerning differences in financial and
operational characteristics of the companies involved and other factors that could affect the
companies compared to the Company and the transactions compared to the Transaction.
KSA’s opinion was provided to the Board in connection with the Board’s consideration of the
proposed Transaction and was only one of many factors considered by the Board in evaluating the
proposed Transaction. Neither KSA’s opinion nor its analyses were determinative of the Offer Price
or of the views of the Board or the Company’s management with respect to the proposed Transaction
or the Offer Price. The type and amount of consideration payable in the proposed Transaction were
determined through negotiation between the Company and Parent, and the decision to enter into the
Offer and the Merger was solely that of the Board.
KSA, as a customary part of its investment banking business, engages in the valuation of
businesses and their securities in connection with mergers and acquisitions.
7
In rendering its opinion, KSA assumed that the proposed Transaction will be consummated on
substantially the same terms as described in the Merger Agreement, without any waiver of any
material terms or conditions by the Company. Further, KSA assumed that, in all respects material to
its analysis, the representations and warranties of the Company and Parent contained in the Merger
Agreement are true and correct and that each of the parties to the Agreement will perform all of
the covenants and agreements to be performed by it under the Merger Agreement.
KSA’s opinion addresses only the fairness, from a financial point of view, of the Offer Price
to be paid to the holders of Company common stock in the proposed Transaction, and KSA did not
express any views on any other terms of the proposed Transaction. Specifically, KSA’s opinion did
not address the Company’s underlying business decision to effect the proposed Transaction as
compared to any alternative business strategies that might exist for the Company, the financing of
the Transaction or the effects of any other transaction in which the Company might engage.
Furthermore, KSA expressed no opinion with respect to the amount or nature of any compensation to
any officers, directors or employees of any party to the Transaction, or any class of such persons
relative to the Offer Price to be received by the holders of Company common stock in the
Transaction or with respect to the fairness of any such compensation.
KSA did not express any opinion as to the price or range of prices at which the Company’s
common stock may trade subsequent to the public announcement of the Transaction.
For services rendered in connection with the proposed Transaction, the Company has agreed to
pay KSA a non-refundable retainer fee of $100,000, credited against a contingent success fee of
1.75% of the total Transaction consideration. The entirety of such contingent success fee will
become payable only if the proposed Merger is consummated. In addition, the Company has agreed to
reimburse KSA for its expenses incurred in connection with its services and will indemnify KSA
against certain liabilities in connection with its services. KSA does not have any equity holdings
in the Company.
During the prior two years preceding the date of this opinion, KSA provided a range of general
management consulting services to an affiliate of Parent in Europe and Asia. Neither KSA nor its
affiliates have had any other significant commercial or investment banking relationships with the
Company, Parent or the Purchaser.
Item 8. Additional Information.
Item 8 is supplemented by adding the following information at the end thereof:
Beers v. Ashworth, Inc., et al.
On October 31, 2008, Richard F. Beers, individually and purportedly on behalf of all others
similarly situated, filed a complaint against the Company, each Board member, Parent and the
Purchaser in the Superior Court of the State of California (Case No. 37-2008-00060336-CU-MC-NC, San
Diego — North County, Vista Regional Center). The complaint, which is filed herewith as exhibit
(a)(7) and incorporated by reference herein, alleges that each Board member breached his fiduciary
duties to the Company’s shareholders in connection with the Company sale process and related
disclosure, and that Parent and the Purchaser aided and abetted the Board in the alleged breaches
of fiduciary duties.
The complaint seeks the following relief with respect to all defendants jointly and severally:
(i) certification of the action as a class action, certification of the plaintiff as class
representative and certification of the plaintiff’s counsel as class counsel, (ii) preliminary and
permanent injunctions of the Offer, (iii) in the event that the Offer is consummated, rescission of
the Offer or an award of rescissory damages, (iv) an order that the defendants account to the
plaintiff and other members of the putative class for all damages allegedly caused by the
defendants and that the defendants account for all profits and any special benefits allegedly
obtained as a result of the defendants’ alleged breaches of fiduciary duties, (v) an award to the
plaintiff of the costs of the action, including a reasonable allowance for the fees and expenses of
the plaintiff’s attorneys and experts and (vi) such further relief as the court deems just and
proper.
8
Item 9. Exhibits.
Item 9 is supplemented by adding the following exhibits:
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
(a)(7)*
|
|
Complaint filed on October 31, 2008 by Richard F. Beers, individually and on behalf of all
others similarly situated, in the Superior Court of the State of California (Case No.
37-2008-00060336-CU-MC-NC, San Diego — North County, Vista Regional Center).
|
9
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information
set forth in this statement is true, complete and correct.
|
|
|
|
|
|
|
|
|
|
Dated: November 7, 2008
|
|
|
|
|
|
|
|
|
|
|
|
ASHWORTH, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
Name:
|
|
/s/ Allan H. Fletcher
Allan H. Fletcher
|
|
|
|
|
Title:
|
|
Chief Executive Officer
|
|
10
Ashworth (NASDAQ:ASHW)
Historical Stock Chart
From Mar 2024 to Apr 2024
Ashworth (NASDAQ:ASHW)
Historical Stock Chart
From Apr 2023 to Apr 2024
